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Insatiable Appetites

World Coal,


Rapid economic development is consolidating the Asia Pacific region's reliance upon coal. Largely thanks to China, real growth in developing East Asia was expected to rise to 8.7% over 2010 after slowing from 8.5% in 2008 to 7.0% in 2009.Strong Asian coal markets have become “red hot.” Over 2010, 60 – 70 million t of coal production or imports would be needed to replenish low inventories in China and India, not to mention that needed to satisfy new power plants and steel mills.

Scramble to secure supply
Without exception, coal producing countries worldwide are being targeted by Asian power companies, steel producers and industry scrambling to secure coal supplies. Some of the companies active include India's NTPC (formerly National Thermal Power Co.), state-run Coal India Ltd (CIL) and Tata Power.

Coal producers are also seeking joint ventures to develop Asian resources. BHP Billiton is to develop the Maruwai resource in Indonesia with Adaro Energy. Australian-based Kangaroo Resources has raised AU$ 30 million for the purchase and development of coal options in East Kalimantan, Indonesia, and Churchill Mining and Indonesian partners are developing the 2.48 billion t East Kutai resource.

Dancing with the Mongol wolf
China is eyeing resources in Indonesia, Australia and Mongolia. The China Investment Corp. has an initial US$ 1.9 billion available to fund the acquisition of mines in partnership with Indonesia's Bumi Resources, while the China Coal Import and Export Co. (CCIEC) has signed a AU$ 30 million joint-venture with Australian junior Metro Coal.

 A major Chinese target is the Tavan Tolgoi resource in Mongolia, one of the world’s largest undeveloped coal deposits with coal horizons reportedly 300 m or more in thickness. It has the potential to produce 30 million tpa of coal for the next 30 years.

The sale of a 49% stake in Tavan Tolgoi was expected to realise US$ 2 billion, but the Mongolian prime minister, Sükhbaataryn Batbold, said that keeping 100% of the resource would allow the nation a greater return.

An unstoppable transformation
A significant interest by China in the world’s largest coal resource could reshape world coal trade. Rio Tinto chief executive, Tom Albanese, has warned that cheap coal from Mongolia could undermine export markets, largely by taking a large share of the Chinese trade.

 Moscow-based Renaissance Capital has forecast that Mongolia may become the world’s fastest growing economy over the next decade as untapped mineral resources lure investors.

Fastest growing market; fastest growing importer
China has become the fastest growing coal market in the world, India the fastest growing importer.

 The World Bank says that China’s primary energy consumption rose by 10% each year between 2000 and 2005. It predicts that if recent patterns continue, consumption will surge to the equivalent of 87% of today’s world consumption within 20 years. An analysis by BP shows the share of the world’s energy consumed in the Asia Pacific region was 33% in 2008; the share of coal consumption was 60%.

The search for ever increasing supplies of coal by China and India has caused concerns over domestic supply in at least two countries that currently supply them.

Fears of export limits
Indonesia is on many coal consumer’s radar as one of the leading exporting countries. A Government official has announced that coal producers will be required to “first meet demand from domestic buyers before exporting.”

Barbara Hogan, the public enterprises minister whose portfolio includes responsibility for state power generator Eskom, said that South Africa must also make it a national priority to secure internal coal supply to meet domestic energy needs against rising demand from Asia, hinting at the regulation of exports.

Demand for South African coal from India and China is rising fast. The two countries accounted for 48% of South Africa’s exports over March 2010. China and India could take 75% of South Africa’s exports, which were expected to total between 65 and 67 million t, over 2010.

The major coal suppliers to Eskom say their exports pose no risk to domestic supplies, citing the incompatibility of their export and Eskom grade products.

Time for a change
The World Bank report says that whilst East Asia has emerged stronger from the global crisis and rapid growth is possible in the coming years, development priorities must change. Enabling environments should be provided to allow more growth in the region’s service sectors and private consumption, moving away from investment-heavy export led growth.

 For the middle income countries of East Asia, the priority was more investment in physical and human capital. The low income countries needed to break into manufacturing and become part of global and regional production networks. Commodity exporters needed to strengthen fiscal rules and frameworks to translate volatile external revenues into long-term sustainable growth.

 The bank identified increases in domestic demand and rising exports as indicators of a rebound in industrial production across the region. Again, China was in the lead, with production up 16% in Q4 2009, more than twice as fast on average as the rest of East Asia.

Note
The countries of the region defined by the World Bank as "developing East Asia" are: China, Indonesia, Malaysia, Philippines, Thailand, Vietnam, Cambodia, Lao PDR, Timor-Leste, Mongolia, Fiji and Papua New Guinea. The newly industrialised economies of Asia (NIEs) as defined by the World Bank are: Hong Kong, South Korea, Singapore and Taiwan. Middle income countries (MICs) are: Indonesia, Malaysia, Philippines and Thailand. With acknowledgements to the World Bank. For further information on the economies of East Asia and the Pacific visit: www.worldbank.org/eap

Author: Barry Baxter, contributing author, World Coal magazine

Read the article online at: https://www.worldcoal.com/coal/27052010/insatiable_appetites/


 

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