March 3 (Bloomberg) -- Enel SpA, RWE AG and other European electricity producers said soaring freight costs will spur them to buy more thermal coal from South Africa and other producers in the Atlantic market this year, bolstering near-record prices.

Global freight rates have tripled in the past year, mostly because of Chinese imports, increasing the cost of importing coal from Pacific producers such as Australia. The country's coal prices have reached a record high, mostly on expectations that China will curb exports because of demand by its own utilities.

``At the moment its very hard to get coal from the Pacific into the Atlantic because the freight market is of the likes we've never seen before,'' Murray Houston, a marketing director at Xstrata Plc, the world's fourth-largest coal exporter, said yesterday at the Coaltrans conference in Cape Town, South Africa.

Coal is the second-biggest source of European power supplies after nuclear reactors, accounting for about one-fourth of the European Union's total, according to EU figures. Rising fuel costs have helped drive up power prices charged by Enel, RWE and other generators in the region.

China's imports are tying up ships at a time when single- hulled tankers are being phased out and production of new vessels hasn't matched demand. The country's economy expanded 9.1 percent last year, the fastest in six years, pushing up demand and prices for commodities from iron ore to oil to metals.

South Africa was the fourth-largest thermal coal exporter last year, selling about 65 million tons into the Atlantic market and 5 million tons into the Pacific, said David Spalding, editor of the South African Coal Report. By 2010, he expects the country to be selling 5 million tons more to Europe and elsewhere in the Atlantic market, with no change in sales to Asia.

Italian Imports

Record prices and rising freight rates haven't curbed coal demand yet. As of the end of February, Xstrata, based in Zug, Switzerland, had already sold about 50 percent of its expected Australian production for this year and 55 percent of its South African output, said Peter Coates, head of the company's coal business.

Italy, Portugal and Germany are among the buyers. Italy's coal imports will probably rise to 16 million tons in 2004 from 14.4 million tons, said Davide Giuliani, a senior coal trader at Rome-based Enel, Italy's biggest utility. Italy gets as much as two-fifths of imported thermal coal from South Africa.

``The freight market situation may remain strong for one or two years,'' Giuliani told the conference.

EDP Producao SA, a unit of Lisbon-based Electricidade de Portugal SA, is increasing coal imports from South Africa, Colombia, the U.S. and Poland, Antonio Goulao, director for fuel procurement, told the conference.

German Imports

Germany, Europe's largest economy, imports about 39 million tons of coal a year, including 10 million tons from South Africa. RWE AG, Germany's No. 2 utility, expects to increase coal imports for the next several years as domestic production declines, said Hartmut Podschwadek, a purchasing manager at RWE Power AG.

The Essen, Germany-based company doesn't see freight rates dropping for at least a year, he said.

Richards Bay Coal Terminal, on South Africa's northeastern coast, expects within two months to approve an expansion program that will make it the world's biggest coal-export terminal, ahead of Newcastle in Australia, Managing Director Nigel Stevens said. The terminal is owned by coal producers such as BHP Billiton, based in Melbourne.

The globalCOAL RB Index of coal from Richards Bay delivered within three months was little changed last week, down 7 cents at $42.25 a metric ton. That's still just $1.15 away from the record high reached in January.

Contract Prices

In Australia, prices rose $2.80, or 6.6 percent, to a record $45.25 a ton last week, according to the globalCOAL NEWC Index, for coal from Australia's Newcastle port.

Long-term contract prices for Asian coal may rise by 40 percent or more this year, Deutsche Bank AG estimates. That's a ``pretty valid'' assumption, Xstrata's Coates said last week. Xstrata plans to increase coal production by a third by 2007.

The price difference between the Atlantic and Pacific markets and costs stemming from port congestion, or demurrage, eventually may spur Asian buyers to buy more South African coal, said John Howland, a U.K.-based editor at McCloskey Group, an industry consultant.

Delays at Australia's Newcastle port are adding about 80 cents a ton to Xstrata's costs.

``With Newcastle prices still firming and with demurrage at over two weeks, we could see some South African coal going to Asia and that would help firm prices,'' he said. ``We recently saw a spot contract into Taiwan and that was the first one for a long time.''

Editors: Farr

To contact the reporter on this story: Antony Sguazzin in Cape Town asguazzin@bloomberg.net. Stuart Wallace in London swallace6@bloomberg.net.

Last Updated: March 2, 2004 19:10 EST