Two factors go to the heart of coal’s strength.
One affects metallurgical coal. They can’t get enough of it. The demand trends for iron ore indicate this situation will continue for many years to come.
And thermal coal? Remember Japan in the summer heat.
For all the other economic problems during Japan’s long slump of the 1990s, it appeared most people in that country kept their air conditioning units humming right through summer.
Then think all those new apartments in China and air conditioning.
These thoughts were stirred during a busy week for coal news. China had wrestled with the Indians and won control of Rocklands Richfield. New Hope Corporation made a surprise bid for Resource Pacific.
And then there were those locally listed smaller companies buying coal to mine themselves. Perth-based GVM Metals acquired 60 per cent of another South African coal project.
Mantle Mining Corp - until now a gold miner - bought a 37.5 per cent stake in the 500 million tonne Mt Mulligan coal deposit 100km from Cairns.
The project has been lying dormant since 1957; previously it had produced coal for a local power station and for Queensland Railways’ steam locomotive fleet. Mantle plans to mine the coal and extract methane gas.
Analysts have been bullish about coal. This week the Taipei-based KGL Securities predicted coal would reach new record prices by year-end. This is partly the result of the fact that, in January this year, China became a net importer for the first time. Chinese spot prices for metallurgical coal reached US$108.24 a tonne in August.
Macquarie Bank’s commodities research unit recently went positive, too. The data on global coal exports for the first half of 2007 showed that, both for coking and thermal coals, supply growth continued to be outstripped by demand, they said.
But back to the Indo-China struggle for Rocklands Richfield. We tend to think “China” first, “China”, second and, probably, third when considering mineral commodities.
But India is a vital part of the coal picture. Sydney-based analysts Barlow Jonker have concluded that, by 2020, India would be the third biggest coal-importing nation after Japan and South Korea. Demand from India would, the report added, be three times what it is today.
India relies on coal-fired power generation for 54 per cent of its electric supply and even being the world’s third largest coal-producing country would not avert India’s growing dependence on imports.
Coal-fired power generation would rise from 69 gigawatts in 2006 to 130GW by 2020, Barlow Jonker estimates. On the steel-making front, coking coal consumption is expected to grow by more than 50 per cent by 2010.
Sure, opinion seems to be hardening against continued use of coal and its emissions in the developed world. The Canadian province of Ontario is considering closing all its coal-fired power stations and this week the Lieutenant Governor of Kansas, Mark Parkinson, called for that American state to switch from coal-fired thermal stations to wind power.
But for every Ontario or Kansas, there are many new openings for coal. Even in the US: at an investment conference in New York this week, three power utility executives said that, even with the move back toward nuclear energy, coal would still count for about 50 per cent of electricity feedstock in 20 years from now.
France’s EDF Group has announced plans to build, at the cost of US$4.6 billion, a 3600MW coal-fired generating plant in the southern Vietnamese province of Hau Giang using local and imported coal.
Andhra Pradesh state in India is looking at switching to coal for new power plants because of rising gas prices. Indian company Gremach Infrastructure this week bought control of 11 coal mines in Mozambique for their low ash metallurgical coal, joining Tata Steel and JSW Steel with coal investments in that African country.
And the Chinese still believe in the stuff. Coal producer China Shenhua Energy went to the market with an IPO seeking US$8.9 billion - it ended up having applications for US$355 billion.
China derives 78 per cent of its electricity from coal-fired power stations.
Neither MiningNews.net nor the author implies any recommendations regarding shares in the companies mentioned. The author does not own shares in any of those companies.