Rush for coal to satisfy rising energy demand in Asia

While the US economy slows, both China and India posted GDP growth rates in excess of 8.5% in the third quarter. As a result, energy demand is increasing sharply. While developed economies explore the potential of ‘clean’ energy supplied from solar panels or wind turbines, many developing countries are looking to satisfy demand with traditional, lower cost options such as coal. Long term estimates of supply and demand suggest that Asia will move from its current regional surplus to a deficit by 2020. The projected shortfall of over 100 million tonnes of coal per year has significant implications for operators in the supply chain including power producers and freight transporters. The situation has prompted India to announce $2.6bn of strategic investment to ensure coal supplies for its steel and power industries.

“The inability of traditional suppliers, such as Australia, to respond to demand with increased production due to infrastructure and transport bottlenecks has dramatically changed the outlook for thermal coal prices in Asia“, according to Charlie Awdry, Manager of Gartmore’s China Opportunities Fund. “We have positions in place across our Global Emerging Markets and China Opportunities Funds which have made significant positive contributions this year. We believe their outlook remains strong given the structural shift in the industry”. Gartmore’s portfolios contain overweights relative to the benchmark in coal producers such as China Shenhua Energy, Thai producer Banpu and China Coal Energy.