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Asia's hunger for cheap energy will sustain coal

Ask Vietnam, Pakistan and even Korea: the era of steam coal is not over yet. Banks don't want to finance it, big miners are dropping it, and China is migrating to cleaner natural gas. But the shift to green fuels is slow, and Asia's demand for electricity is outpacing it. That will keep prices lofty for longer than many had forecast. Thermal coal, burned to generate energy, has few friends in high places. Developed markets like Britain, France and others are phasing it out after the Paris climate agreement, and so too is China, the world's top consumer. Financing coal is getting tougher too, with large banks under pressure from environmentally conscious investors. Even miners are moving on, with almost no significant new projects in the pipeline. Rio Tinto , one of the world's largest mining companies, agreed to sell its last coal asset in March. But even if global appetite is levelling off, the Asian picture is different. In China, where consumption peaked in 2013, deep cuts are taking time. And from Pakistan to the Philippines, the need for more cheap energy means more coal-fired plants, driving regional demand. Take Vietnam, Southeast Asia's fastest-growing economy: local coal production is limited and costly, and almost half of the country's new electricity capacity is expected to be coal-fired. Appetite for the fuel in large existing markets - India, Korea and Japan - is holding up too.

Supply, meanwhile, is hardly likely to increase, as mines age and little new capacity comes onstream. Indonesia, the world's largest exporter of thermal coal, has capped domestic coal prices for power stations, reducing the incentive to invest. And miners that are still betting on coal, like Glencore, are buying existing capacity, not digging fresh holes. As a result, Asia's proportion of thermal coal consumption is up, now standing at 70 percent, compared to less than 50 percent in 2000. More importantly, coal prices are not dropping as consensus suggested. Indeed, benchmark Australian prices have defied the usual lull at this time of year to cross $100 a tonne - the highest seasonal level in six years. Dirty, but certainly not cheap.