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Asia imports more coal to guard against Y2K bug

10:48 p.m. Oct 05, 1999 Eastern

By Michael Byrnes

SYDNEY, Oct 6 (Reuters) - Huge industries across Asia are beginning to build stocks of imported coal to guard against Y2K computer problems blacking out cities and closing down production of everything from cars to electronics across the region.

Nobody expects millennium computer glitches to suddenly cut off coal supplies, which fuel about a third of Asia's electric power, feed Asia's cement production and are a key ingredient in the region's output of blast furnace steel.

But with all the major industrial centres of Asia apart from China dependent on imported coal, drawn mainly from Australia but also from Indonesia, South Africa, Canada and the United States, nobody is taking any chances either.

World mining giant Rio Tinto Plc/Ltd (RIO.L)(RIO.AX), a major producer of Australian and Indonesian coal, will be keeping its coal ships in port over the New Year period.

``Both customers and we suppliers are conscious (of Y2K issues) ... they are trying to organise coal deliveries to avoid too much going on at the time of the New Year,'' a spokesman said.

Asia's build-up of coal stocks is discreet and has not produced coal mountains yet. But sensitivities are clear.

EUROPE BUILDS STOCKS TOO

``Power is an incredibly emotive thing,'' one Australian coal industry analyst said of major Asian population centres. ``If you don't have power and have blackouts and brownouts in Asia people get deeply peeved, it's a way to create discontent in an already unstable region,'' he said.

Power stations in the main industrial centres of Japan, South Korea and Taiwan have been the main builders of coal stocks, but not by uniform amounts.

Asia's electricity giants, which normally hold between two weeks' and one months' supply of coal in stock, appeared to be increasing their stocks by about one weeks' worth of consumption, Australian suppliers told Reuters.

The coal stock buildup goes beyond Asia. European buyers had also begun building stocks of South African thermal coal, particularly through recent deals, said a large Australian producer which did not want to be named.

Insurance with increased stocks is an expression of the surprising number of things which can go wrong along the highly-computerised delivery system for coal.

Australia's A$9 billion (US$6 billion) a year coal export industry has been working for years to ensure that its systems are Y2K compliant.

But if computers malfunction when they register an internal row of zeros at midnight December 31, the coal supply chain could be cut at many points.

Coal loaders dotted along Australia's eastern coast, which normally load around 170 million tonnes of coal a year, the world's biggest coal exports, could grind to a halt. Trains which transport coal to the port could stop. The shiploader might not work. Ships could go astray. At the destination, unloading and stockpiling facilities could go wrong. The power station itself could also malfunction.

``It's a hundred different things,'' the analyst said.

CLOAK AND DAGGER GAMES HIDE STOCKPILE PLANS

The exact extent of Asia's coal buildup is hidden by the usual cloak-and-dagger games which characterise the particularly secretive coal industry, where deals are done in private and prices are normally secret.

``The concern among local suppliers is markets ... is it (a stock buildup over Y2K), just jawboning or is it going to occur?'' the analyst said of industry talk about increased stocks.

``If you're a consumer you're not going to be telling what you are doing because you'll force the price up. It's a delicate game,'' he said.

Coincidentally, an Asian coal stock buildup between now and the end of the year would coincide exactly with the period of peak intrigue in the industry as annual coal price negotiations between Australia and Japan get underway.

``It (a Y2K stock buildup) could affect the market,'' one producer said.

But, as usual, nobody knows exactly what is going on in customers' camps.

Asian power stations were coming out of their peak production period and needed to replenish stocks anyway, one producer said.

And, perversely, the market for steaming coal for power generation has turned soft, falling below US$20 a tonne in September from $24 a few months before.

``You could argue they've been holding off ahead of doing major buying over the last quarter of the year, which is possible,'' the analyst said.

``I don't think it's a big factor but I think it is something you will see suppliers and customers doing,'' another producer said of Y2K coal stockpiles. ``It's just a bit of a safety net.''

(A$1 - US$0.66)

-- Name (em@il.address), October 06, 1999