Hatch Africa, in conjunction with various other consultants, completed a forecast into the global demand and supply of coking coal, and determined that there will be an additional demand of 115 million tpy of coking coal by 2015.
The global crude steel industry has been growing at a Compound Annual Growth Rate (CAGR) of 5.2% primarily due to an increase in demand from China and India. Almost all crude steel in the world is produced through either blast furnace or basic oxygen furnace technologies. The blast furnace technology, being the primary consumer of coking coal, has become the preferred method of crude steel production as can be illustrated by the fact that its preferential share in the market grew from 58% to 73% between the period of 2000 and 2010.
“As a key ingredient in the production of crude steel from blast furnaces, global coking coal production has grown by 5.5%; while coking coal consumption has over the same period, increased by 5.1%. Considering this, the overall production of coking coal is marginally over what is required to sustain the forecasted demand,” explains Gerrit Lok, Director for Coal, Hatch Africa. These statistics refer to the period 1985 to 2010.
It is forecasted that demand for coking coal will be driven mainly by China and India, while supply will still depend on coking coal from Australia and North America.
“Indian coking coal imports are expected to increase to 43 million t by 2015, from levels of 30 million t in 2010 as a result of its increase in crude steel production. It is expected that crude steel production in India will grow at a CAGR of 8.1% resulting in the associated coking coal import demand growing at a CAGR of 7.5% between 2009 and 2015” explains Lok.
Chinese coking coal imports are expected to increase, but this will depend on crude steel production, domestic coking coal production and production costs. “Chinese crude steel production has grown at a CAGR of 14.9% from 151.6 million t in 2001 to 607.6 million t in 2010; this growth is tremendous. However, it is expected that the intensity of crude steel production in China has peaked and that steel consumption will increase at an average of 3% between 2010 and 2015,” continues Lok.
Nevertheless, Lok believes that globally, long-term growth in crude steel production looks promising. “With an additional 300 million t of crude steel being produced per annum by 2015, there will certainly be an increase in the demand for coking coal. This increase in demand ultimately leads to the question of supply,” explains Lok.
A deficit in supply?
It has been forecast that there will be a deficit of coking coal from 2015 onwards and that supply of coking coal will still depend on exports from Australia with further export opportunities from Mozambique, Indonesia, Mongolia, Russia and North America.
“The seaborne export of coking coal will still depend on Australia. Despite Australia already being the biggest exporter of seaborne coking coal with 64% of world exports; it is expected that Australian exports of coking coal will increase further to 192 million t by 2015,” Lok points out.
There is also the possibility of an increase in export levels from the USA, considering the high cash cost of its mines, which could ultimately provide an incentive for the country’s mines to bring additional supply to seaborne markets due to the high spot price of coking coal.
Apart from Australia and the USA, Mozambique, Mongolia and Indonesia will bring an additional supply of coking coal to the market in the long-term.
Mozambique, in particular, has ambitious plans to export more than 100 million tpy, but the country’s infrastructural bottlenecks remain a problem in achieving this target. “There is a disconnection between the pace of mine development and that of the infrastructure needed to transport the coking coal and export it. As a result, Mozambique remains a long-term solution to the tight coking market, with a likely potential of exporting 12 million tpy of coking coal by 2015” explains Lok.
Mongolia has the potential to export 15 million tpa of coking coal in the near future but large-scale investment is needed to develop the country’s Tavan Tolgoi deposit and railway links. “The Tavan Tolgoi deposit is one of the world’s largest undeveloped coking coal deposit with an estimated reserve of 2.6 billion t” Lok explains.
The annual output, which could reach up to 50 million tpy, would mainly be targeted at the Chinese market as Tavan Tolgoi’s hard coking coal is in great demand in China. Lok points out that the deposit’s export potential will ultimately be determined by the rail links to China.
“According to a World Bank report, Tavan Tolgoi’s output would be sufficient to justify building a railway into China. The cheapest route to export coal would be via the Chinese port of Huanghua via Baotou for approximately US$ 56.5/t; while exporting via the Russian port of Vostochnoy would cost about US$ 125/t. Regardless of the routing, exports from Tavan Tolgoi will displace some of the Australian exports to China,” explains Lok.
Looking at Russia, the country has the potential to export coking coal from its Elga basin, but investment is needed in port infrastructure. Based on annual expansion plans by various companies, the country’s Pechora, Kuzbass and South Yakutsk basins hold the potential of exporting 24 million tpy.
Looking ahead, long-term coking coal demand remains positive with premium coking coal prices still being the order of the day. There might, however, be some short term over or under supply conditions mainly as a result of interim global economic uncertainties. The fundamentals of global population growth driving consumption, the renewal of old infrastructure in developed countries and the establishment of new infrastructure in developing countries is still intact and will drive the long-term demand for crude steel.
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