As the end of a difficult year for the coal industry approaches, it is worth spending a few minutes pondering what the next year will bring. Here are a couple of trends to watch.
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Political interference in mining. From tax increases on mining revenues to protectionist regulation and calls for nationalisation, resource nationalism was a recurring theme throughout 2012 – and it is a trend that is likely to continue next year. In terms of the coal industry, Mongolia, Indonesia and South Africa are all countries to watch, while Australia’s controversial Minerals Resource Rent Tax is sure to play a role in that country’s federal election due by the end of November next year.
Labour relations. Labour relations in the mining industry have been in the headlines this year following the killing of 47 mine workers involved in a wildcat strike at Lonmin’s Marikana platinum mine in South Africa. Although the violence has not spread to the coal industry, tense labour relations are still an issue the coal industry must deal with. Last month, South African coal producers agreed to raise entry level wages by 5% and give one-off payments for higher categories of workers in an effort avoid unrest. Meanwhile, the Colombian Government has said that coal production will miss its target because of strikes earlier this year at the country’s main coal railway and at the La Jagua mine. As costs remain high and prices low, production losses due to industrial action are a financial burden the industry could do without.
The balance of trade. Perhaps the story of this year was the increase in coal exports from the US, with a subsequent drop in prices as supply outstripped demand. In 2013, several factors will be at play here. US domestic demand was low this year due to ultralow gas prices and a relatively mild winter. A repeat of the same conditions next year will keep US domestic demand low, but should gas prices begin rise and the winter be a harsh one, coal will become more attractive, curbing exports. On the demand side, a cold winter in Europe and a return to strong growth in Chinese and Indian demand would help the market to rebalance and prices begin to rise. But given the current surplus, this may not begin to happen until the tail end of 2013 at the earliest.
Risk management will be key. The industry goes into next year facing an uncertain time. How well a company manages the risks ahead will be an important – perhaps the most important – factor in its success. With this in mind, World Coal has teamed up with JLT Specialty Ltd, provider of the World Risk Review, to offer readers a risk-management perspective on key coal producing regions, starting with India in January. Elizabeth Stephens, head of credit and political risk at JLT, also provides this month’s Industry View (p. 9), looking at the importance of effective risk management for the mining industry. We look forward to sharing their insights in the year ahead.