“Taking coal to Newcastle” is an old British saying that refers to a pointless activity. Newcastle, one of the centers of Britain’s Industrial Revolution, was for centuries the main source of coal for London. Coal was so plentiful in Newcastle that the idea of taking coal there represented the epitome of foolishness in the minds of the British.

Taking coal to Newcastle, Australia in 2008, however, may not be such a bad idea. The price per metric ton of coal out of Newcastle, Australia is a key benchmark for the Asian market, and that price has tripled from US$40 per ton at the end of 2006 to over $120 today. While many other factors have been at work over the past year, bad weather in China has caused coal prices to spike 34 percent in recent weeks.

If you are like me, you have been taking coal for granted. Unlike oil resources, the majority of which are concentrated in a relative handful of countries, coal is everywhere. Besides, it is a nasty, dirty source of energy, which is falling increasingly out of favor at a time when concerns for greenhouse gases and global warming are at a peak. Right?

Well, it turns out that the opposite is true. The world can’t seem to get enough of the black stuff, and China’s switch from being a coal exporter to being a net coal importer has been one of the reasons why the balance of global coal supplies has been tipped, and the world is now facing shortages—and much higher prices.

Shai Oster, a veteran China reporter who now covers energy matters for The Wall Street Journal out of Beijing has just written an excellent, comprehensive piece on this subject with his colleague, Ann Davis. If you haven’t seen it, I encourage you to take a look. Among other lessons, it once again demonstrates just how pervasive China’s impact has become on the rest of the world.

Some of the key points in the article which particularly struck me:

• China has long been a huge supplier of coal to itself and the rest of the world. But in the first half of last year, it imported more than it exported for the first time, setting off a near-doubling of most coal prices around the world. The capper came in late January when a winter of punishing snowstorms and power shortages led Beijing to suspend coal exports for at least two months.
• Five years ago, China exported 83 million more metric tons of coal than it took in. Last year, that surplus had fallen to two million. The rapid loss of more than 80 million tons in exports amounts to about 12 percent of the internationally traded market.
• For the world, which uses coal for about 40 percent of its electricity, the result is similar to what happened after China became a net importer of oil in 1993.
• Chinese coal demand grew nearly 9 percent last year, raising its share to a quarter of the world’s consumption.
• China’s need for coal is rising as other factors around the world are putting severe strain on supply for the fossil fuel. Flooding at major mines in Australia since mid-January has dramatically stunted that major coal producer’s exports to Asian markets.
• Demand is rising quickly elsewhere. Japan, one of the world’s biggest importers, is burning even more coal since an earthquake damaged a nuclear reactor last year, doubling one utility’s coal intake. Longer-term pressure comes from India, which has mounted a major expansion of coal-fired electricity plants that is driving up the country’s coal imports despite its large domestic reserves.
• Some experts say coal prices could remain high or even keep climbing through 2009 or beyond, weighing on the already-slowing world economy. Even though coal is a leading source of atmosphere-warming greenhouse gases, its share of the world’s energy diet is increasing — which could help keep its price up in a recession.
• Although the use of cleaner-burning alternative fuels is on the rise, fast-growing energy consumption is expected to underpin coal demand. Still a relatively cheap — and abundant — alternative to oil, coal is sought in rapidly industrializing nations such as Brazil, India and Vietnam as well as China.
• And Chinese regulations have contributed to shortages. China has freed domestic coal prices to rise with demand, but has capped electricity tariffs. That led power plants to order less coal — leaving them short of coal when the storms hit.
• The coal shortage has rippled through other commodity markets, hurting China’s output of steel, copper, zinc and aluminum as electricity is being diverted for domestic industry and household heat and electricity. China’s largest copper producer, Jiangxi Copper Co., shut down some plants, contributing to higher U.S. copper futures.

Along with everything else, this is obviously not good news for inflation in China, which is now at its highest levels in 10 years.