China To Be Top Coking Coal Importer -Brazil Consultant
July 12 2011 - 5:37PM
Dow Jones News
China, until recently a net exporter of coking coal, is set to
become the world's biggest importer of the steelmaking ingredient
by 2015, causing "dizzying" upwards pressure on prices, a
Brazil-based coal industry consultant told Dow Jones Newswires.
"Five years ago, China was a net exporter of coking coal, and
about three years ago started to import small tonnages, such as 4
million to 5 million tons a year," said Luiz Sarcinelli, a Rio de
Janeiro-based coal consultant with Sage Consultoria Tecnica Ltda.
"But now, China's importing 40 million tons a year and could
overtake Japan, which imports around 100 million tons, in 2015, to
become the world's biggest importer."
China-led demand may cause coking coal prices to spiral higher
over the next five years due to supply limitations, according to
Sarcinelli. China-led demand has already prompted a sixfold price
increase over the last decade to about $330 a ton, according to
another Brazil-based consultant, Otacilio Pecanha of Negotiare
Consultoria.
China is the world's biggest producer of coking coal, producing
more than 400 million tons a year, but that isn't enough to satisfy
the needs of its growing steel industry. Last year, China produced
626 million tons of crude steel, almost half the global output of
1.413 billion tons, according to the Brussels-based World Steel
Association.
Analysts at CRU Group and Barclays Capital expect China's crude
steel output to leap this year to between 700 million and 750
million tons and to 812 million tons in 2015. Steel demand is seen
topping 1 billion tons a year by 2016, as the Asian giant rapidly
develops urban areas. Steel output at this level would require
coking coal availability of at least 500 million tons a year.
"Imports of coking coal and iron ore into China could double by
2020," said CRU Group's Beijing-based chief executive, John
Johnson, at a recent industry event.
"And even if China doesn't produce as much as 1 billion tons a
year of steel, its coking coal demand will go up as it replaces
older works with bigger, more modern blast furnaces whose
productivity depends on use of higher-quality coking coal, which
also helps to reduce carbon emissions," Sarcinelli said.
China's Ministry of Industry and Information Technology this
week announced plans to shut 27.94 million tons of outdated
steelmaking capacity in 2011.
Barclays Capital said that it "remains skeptical on China's
ability to shut down steelmaking capacity, as capacity has
continued to grow an estimated 11% a year between 2005 and 2011."
However, China's smaller furnaces have been replaced with large
ones that use more coking coal, Barclays' analysts said in a
research note.
"The coking coal market's starting to get unbalanced,"
Sarcinelli said. "Steelmaking is growing faster than coking coal
output, particularly in China, India and Brazil, which are
countries deficient in coking coal. Supply's not going to match
demand."
Fuller economic recovery in the U.S. and Europe will also put
pressure on available coking coal supplies, as steelmakers boost
output to meet recovering demand, he said.
"The U.S hasn't got much chance of raising its coking coal
output," Sarcinelli said. "The three new horizons in coking coal
production globally are in Australia's Belvedere region, in
Mozambique and in Mongolia."
Mining companies Vale SA (VALE, VALE5.BR) and Rio Tinto PLC
(RIO, RIO.LN) are expanding coal operations in Belvedere and in
Mozambique.
Mongolia's government last week said it is negotiating accords
with groups including the U.S.'s Peabody Energy Corp. (BTU),
China's Shenhua International Ltd. (SHU.AU) and a Russian-Mongolian
consortium to develop the country's massive Tavan Tolgoi coal
deposit, which has estimated coal reserves of 6.4 billion tons, of
which 1.8 billion tons are known to be coking coal.
"An important part of future coking coal supply will come from
Mongolia," Sarcinelli said.
-By Diana Kinch, Dow Jones Newswires; 55-21-2586-6086;
diana.kinch@dowjones.com
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