12 / 12 / 09 We can't afford to ignore our coal resources AS world leaders gather in Copenhagen for the climate change summit, the UK delegation sho..
more
22 / 06 / 09 Anglo stresses early-stage nature of Xstrata 'proposal' The board of diversified mining group Anglo American confirmed on Sunday that it had indee..
more
14 / 04 / 09 China economy shows signs of recovery China's economy is showing signs of a nascent recovery, but even officials who want to boo..
more
02 / 01 / 09 China turns screws on iron ore giants JUST days into the new year the signs from China for our battered big miners are ominous.
..
more
|
 |
25 / 01 / 10 in
China may be put on the spot over iron ore
The hottest commodity of 2010 could well be iron ore. That's why there is a great deal of uncertainty over pricing.
Iron ore is one of the essential building blocks of the Chinese economic miracle. It is used to make steel, which is vital for the country's infrastructure plans. If China can't continue to build, its economy will grind to a halt - and bring a multitude of problems to the country.
China does have its own reserves of iron ore but, compared with what can be found in the Pilbara region of Western Australia, for example, it is low grade and expensive to process. Iron ore imports are essential to feed the hungry China machine.
All of this means that China needs the three main suppliers – Rio Tinto, BHP Billiton and Brazil's Vale – as much as these companies need China, the world's number one customer for the sector.
However, pricing talks have got very sticky - in fact, it appears they have completely ground to a halt. Traditionally, iron ore prices are set by annual negotiations with steel makers, with contracts taking effect on April 1 each year. However, last year's talks ended disastrously. No agreement could be reached and Chinese officials ended up walking away from the discussions.
The China Iron & Steel Association (CISA), which was leading the talks, wanted a better price than the benchmark agreed with Japanese mills, which had accepted a 33pc cut in the price. It wanted a 40pc cut to reflect its importance in the market.
The situation was complicated further when four of Rio's officials who were involved in the pricing talks were arrested - accused of corporate espionage. All of these men, including Australian national Stern Hu, continue to await their fate.
This issue stirs strong feelings in Australia, because the country's mining industry is so vital to its GDP.
Tensions ahead of the latest pricing talks have risen so high the Australian press have been waging an increasingly hostile campaign against the Chinese.
An un-named senior executive in the mining industry recently told Business Day that CISA had so far "repeated all the mistakes of last year and added a few more" in this year's iron ore talks. The Chinese stand accused of "lobbing bombastic threats without having any strategy for following through".
It is believed that, two months ago, CISA demanded a "China price" for its iron ore – at a discount to steel mills in other countries.
However, the spot price has jumped by more than a third over this time. Last
year, steel production in China rose 14pc to a record 568m tonnes, according to the National Bureau of Statistics.
This has helped drive the iron ore spot price to a record $135 a tonne in recent weeks - more than double last year's agreed benchmark price of $60.4 a tonne. However, despite CISA's hopes of a discounted China price, it is believed that the organisation has not been in contact with any of the major miners since this request two months ago.
All of this means that the trend over the last few years away from the benchmark system is inevitable. Usually the benchmark price is set at a discount to the prevailing spot price.
Some interesting pieces of information were revealed last week that may have weakened China's hand in any benchmark discussions. Both BHP and Rio Tinto revealed that they had produced iron ore in record quantities in the fourth quarter.
Despite this record production, the spot price still rose significantly over the period.
The miners cannot therefore be accused of keeping down supply to inflate artificially the spot price to help with pricing talks.
Demand was strong for this essential commodity even when production was at a high. BHP also said that it had sold 46pc of its ore in the final quarter of 2009 on short-term contracts. This is a mixture of the spot price, quarterly agreed prices and hybrids of the two.
For a number of years the company has made no secret that it would like to move away from benchmark pricing - and this year could be when it happens for good.
Because of the confusion caused by CISA, it is now believed that large steel mills such as Wuhan Iron and Baosteel have bypassed the official talks and are dealing directly with miners.
China may, after all, secure its "China price" for iron ore. The only problem is, it could be at the higher spot price rather than at a discounted benchmark level.
Ultimately, the market will move to more short-term pricing. After the volatility in prices we have seen over the last two years the reason for this is clear.
Both Rio Tinto and BHP declined to comment on the pricing talks, as they never comment on such speculation.
14 / 01 / 10 in
Big miners shun China during iron ore price talks
Global miners have sidelined China, their biggest customer, in the annual iron ore price negotiations because of political gridlock over the resource in the industry and government and fears about retribution if the talks collapse.
Vale of Brazil, Rio Tinto and BHP Billiton, the big operators that mine iron ore in Australia, are talking instead to Japanese customers to reach a benchmark agreement that they can present to Beijing on a "take it or leave it" basis.
The move to sideline Beijing is remarkable as China is by far the world's largest iron ore importer, accounting for over 50 per cent of the seaborne market.
The miners have so far held no substantive negotiations with the Chinese side, led by Baosteel, the big state-owned steel mill, according to people familiar with the talks. They added that there were no plans to travel to China for talks, meeting instead in Singapore.
One executive said: "As far as I am concerned, they [the Chinese negotiators] could come over to Australia if they want to talk."
The Chinese side has been hamstrung by internal disputes between steel companies and the industry association over how to manage any talks and a price they should agree on.
Prospects for a deal this year have been further complicated by the detention last July of Stern Hu, Rio Tinto's former iron ore executive in China, along with three other employees of the Anglo-Australian miner, on charges of obtaining commercial secrets.
The Australian government said yesterday that Mr Hu's case has been referred to the prosecutor to decide whether or not he and his colleagues will stand trial.
Under Chinese law, the prosecutor has 45 days to decide, said Tao Wuping, lawyer for Liu Caikui, one of the Rio employees detained.
Legal sources said they expect that even though Chinese law allows for the possibility the men will be released, they are more likely to be charged and brought to trial, any time from the end of February.
The miners hold the upper hand in the negotiations after the cost of iron ore on the spot market surged last week to a 1½-year high of $131.20 a tonne.
Excluding freight costs, spot prices are more than 90 per cent above the $61- a-tonne level agreed in the 2009-10 contract talks.
06 / 01 / 10 in
India May Have Become Top Buyer of South African Coal
India may have overtaken Europe for the first time as the biggest purchaser of South African coal in 2009, according to Raymond Chirwa, Richards Bay Coal Terminal’s chief executive officer.
Shipment levels to India and Europe in the year’s first 10 months were similar, while the final two months are being calculated, Chirwa said in a phone interview today. “It would be a big shift” if India were the largest buyer, he said.
Richards Bay, on South Africa’s northeastern coast, handles almost all of the nation’s outbound coal shipments and is owned by Anglo American Plc and its other leading exporters of the fuel. While the port is the biggest source of coal for European power plants, Asian buyers have been increasing purchases, including lower-quality fuel.
“You have strong growth in India and weakness, if not contraction, in terms of growth in Europe,” Daniel Brebner, an analyst at Deutsche Bank AG in London, said in an interview. “It isn’t surprising that you are seeing this evolution of exports by the South Africans into near Asia.”
Indian Imports
India’s power ministry has advised local generators to import 28.7 million metric tons of coal for the year ending in March to meet a shortfall, Coal Minister Sriprakash Jaiswal told parliament in writing on Dec. 7. Coal India Ltd., the country’s biggest producer, may acquire mines in the U.S., Australia and other nations to bridge the domestic shortage, Jaiswal said in a written reply to lawmakers on Nov. 23.
Overall exports from Richards Bay fell for a fifth straight year in 2009 as rail services deteriorated, sliding to 61.14 million tons from 61.7 million tons in the prior year. Chirwa gave no breakdown for coal shipments by destination.
State-owned Transnet Freight Rail delivered 61 million tons in the year, less than the terminal’s 76 million-ton capacity, Richards Bay said in an e-mailed statement.
“We still see that there is the biggest impact coming through from rail services,” Chirwa said, adding that talks are under way with Transnet Freight Rail.
Spokesman John Dludlu at Transnet Ltd., the parent company of Transnet Freight Rail, declined to comment.
91 Million Tons
The terminal, founded as a 12 million-ton facility in 1976, aims to raise annual capacity to 91 million tons in the second quarter, making it the world’s biggest coal-export port, according to the statement.
Exxaro Resources Ltd. and other black-owned mining companies are expected to join Anglo and other users of the facility this month as part of an accord related to expansion at the terminal, Richards Bay said.
Prices for coal shipped from the terminal reached the highest in almost a year in the three days to Dec. 31, rising 4.8 percent to an average of $81.20 a ton, according to Petersfield, England-based researcher McCloskey Group Ltd. It was a seventh consecutive weekly gain, driven by coal demand from China, the world’s biggest consumer of the fuel.
“It’s a knock-on effect,” Mike Newman, an analyst at McCloskey, said by phone yesterday. “Chinese prices rise, which makes Australian coal more expensive, and Australian prices are dragging up Richards Bay prices because they are going into the same market, which is India and China.”
China’s northern Shanxi province closed power stations with more than 4,000 megawatts of capacity yesterday because weather- related disruptions cut coal deliveries, the official China National Radio reported today. The country’s coal imports rose in June to the highest for customs figures on Bloomberg going back to December 2004.
28 / 12 / 09 in
Old King Coal will stay on the commodities throne for years
Waking up to a stocking full of coal is probably not the most exciting start to a Christmas morning. But at least it's got a better chance of increasing in value by next year than a Wii Fit or a Zhu Zhu Pet.
There are many dismissing coal as the unwanted black sheep of the fossil fuel family, blamed for 40pc of the world's carbon dioxide emissions that contribute to global warming.
But in defiance of environmental concerns, there has been little sign that any fall off in coal demand this year is due to anything other than the recession.
Analysts from JP Morgan reckon that thermal coal, used in power stations, will rise from $70 to $85 per tonne next year, based on rebounding demand from China and India. While global inventories have been unusually high in the downturn, the bank believes stocks may decline from 40m tonnes this year to 22.7m in 2010.
"Supply will be tight in the next two years," said Stevanus Juanda, a mining analyst. "In the second half of 2009, we have observed sizeable imports of coal by China, due to the closure of mines in the Shanxi region and rise in electricity generation."
Experts are also predicting a shortage in coking coal used to make steel over the next year, driven up 12-fold by demand from China.
Macquarie, JP Morgan and Morgan Stanley estimate that prices may jump by between 23pc and 38pc in 2010, as global demand rebounds.
And the International Energy Agency believes that coal will account for 29pc of global energy needs in 2030, compared with 26pc in 2006. For Deloitte's energy consultants, this all goes to show that green problems with coal do not yet tarnish its prospects as a "key fuel for the future".
Listening to the political leaders at the Copenhagen climate change conference, you could be forgiven for imagining that the world was about to be seized with a Thatcherite fervour for closing down the mines.
That was the political rhetoric. But the summit failed to reach agreements on targets for lowering emissions and how they should be financed – mostly because burning coal is still in the national economic interest of most developing countries.
In the aftermath of the Copenhagen chaos, Western politicians have been blaming China and India for sabotaging the talks. If true, it is hardly surprising that they want to resist curbs on the predicted growth of their emissions, largely based on soaring use of coal.
The Copenhagen accord may have been vaguely worded, but its implications for commodities are clear: businesses still have little incentive to invest in more expensive renewables and nuclear power while coal and gas are cheaper.
Europe has decided to start closing coal plants without "carbon capture" facilities and China is keen to get its hands on this future technology, but the fact remains that old coal stations are still being built at the rate of one a day.
With "clean coal" technology unlikely to be commercial for another decade, it at least remains a helpful myth for politicians and companies to justify continued investment in the commodity.
21 / 12 / 09 in
China in need chases coal for winter
INCREASED Chinese thermal coal imports and South African port constraints should boost Australian coal prices and demand in the new year, potentially lengthening queues at Newcastle.
According to Chinese media, the nation is preparing for a seasonal jump in heating demand by dropping coal import tariffs and giving thermal coal, used to make electricity, priority over iron ore and coking coal on the railways.
At the same time, bugs in a new computer system and persistent rail problems mean South Africa's Richards Bay coal terminal cannot meet export demand, with miners unable to get growing stockpiles to port, according to Reuters.
Along with increased heating, China's winter coal demand has also been boosted by cold weather closing down some of the nation's hydro-electric power.
This year, winter import demand will be particularly strong as it combines with growing underlying thermal coal demand and domestic supply constraints.
The Asian powerhouse imported 4.1 million tonnes of thermal coal in October, six times monthly imports a year earlier.
Much of the growth was filled by Australia, which exported 1 million tonnes to China, up from 164,000 tonnes in the same month in 2008.
Leading an expected rise in Australian spot prices, Chinese domestic prices have this month risen above delivered prices of Newcastle coal for the first time since May, according to Macquarie analysis.
"We remain bullish on seaborne thermal coal prices given both levels of demand from China and the expected growing appetite to use imported material in coming weeks," Macquarie said in a report released on the weekend.
Last week, Newcastle spot prices were $US81.06 a tonne before shipping, 16 per cent above 2009 contract prices of $US70.
At the same time, there were 53 coal ships waiting to load at Newcastle, the most in almost two years, Bloomberg reported.
Commonwealth Bank analysts said South Africa's coal system computer bugs meant that minimal flows of coal were making it to Richards Bay, where stockpiles were nearing critical levels.
Continued constraints could support Newcastle spot prices next quarter, the bank said.
Last week, Macquarie boosted its forecast for 2010 thermal coal contract prices to $US85 a tonne, up from previous expectations of a $US70 rollover.
Macquarie said it expected 2010 Australian iron ore contracts to be settled at about $US79 a tonne.
This was 30 per cent higher than this year's price of $US60.
04 / 12 / 09 in
Coking coal jumps on China imports
A huge increase in imports by China, particularly from Australia has seen a spurt in coking coal prices. Spot prices of the commodity are ruling around $175 per tonne at present, compared to around $145 a tonne in August. And prices are expected to rise further, with analysts predicting $200 levels by 2011.
If that happens, it could be a double whammy for Indian steelmakers. Rising prices of coking coal could add to their woes of low prices of steel ruling at present.
An Indian steel producer, on condition of anonymity, told DNA Money, "We've been seeing this trend for the last few months as a lot of Australian coking coal is being exported to China. The Chinese buying is cause for concern. We can just hope that the trend is unlikely to sustain if many of the closed mines in China come back into operation." Arun Jagatramka, chairman, Gujarat NRE Coke, one of the largest coke producers in the country, told DNA Money, "China for the first time has become a net importer, which is having its impact globally on the prevailing short supply of good quality hard coking coal thereby causing a spiralling effect on international prices."
Jagatramka said there are two reasons for China's purchases. The first is the consecutive mine disasters that have occurred in recent past, which have shut down production.
Second, though China has huge resource of coal, there are constraints in quality. Trade estimates suggest China's coking coal imports between January and October increased to over 95 million tonnes, a more than 170% increase over the corresponding period the previous year. On the other hand, coal exports from China have decreased by over 50% over the year.
Dipesh Dipu, principal consultant, Pricewaterhouse Coopers, said, "Chinese buying of coking coal would definitely impact spot prices. Once prices go up, steelmakers would face increasing costs of production. It would then depend on whether steelmakers absorb the prices or pass it on to the customer."
Dipu said that prices of coking coal could go up to "$210-220 levels if the trend continues", and that "it could be a cause of worry to steel manufacturers who depend much on imported coal".
"Coking coal is one of the very few commodities whose prices were not affected by the recession. Ignoring last year's windfall, the present price is highest ever in history," Jagatramka said. Prices had shot up to $300 a tonne in 2008.
A recent report of Citi Investment Research & Analysis said that global coking coal prices are expected to harden further and reach $200 a tonne in 2010-11. The semi-soft variety of coking coal is projected at $120 a tonne, up from $100 a tonne. Driven by Chinese imports, prices of the sea-borne variety of coking coal have also increased to $160-170 tonne from $130 a tonne a few months back.
25 / 11 / 09 in
China mine accidents inevitable while coal remains king
More deadly accidents like the one that killed at least 104 Chinese coal miners at the weekend are inevitable as China remains reliant on coal to feed its energy-hungry economy, experts said.
As China talks up its commitment to clean energy on the eve of key climate change talks in Copenhagen, analysts warned that heavily polluting coal would remain the main source of energy here for at least the next decade.
"Coal will remain the dominant feedstock for power generation in China for the foreseeable future and is likely to still account for over 50 percent of China's installed generating capacity by 2020," said Thomas Grieder, an analyst at IHS Global Insight.
Deadly accidents are depressingly familiar in China and will remain so until the country kicks its coal "addiction", said Greenpeace China climate and energy campaign manager Ailun Yang.
"This is an example of the human cost of coal that China is bearing," Yang said, referring to a gas explosion at a mine in northeastern Heilongjiang province on Saturday that killed 104 workers and left four missing.
"For a country that needs to dig so much coal on a daily basis it is impossible to avoid these kinds of accidents," she said.
China's coal mines are among the most dangerous in the world, with safety standards often ignored in the quest for profits and the drive to meet surging demand for coal - which accounts for 70 percent of China's energy needs.
Official figures show more than 3,200 workers died in coal mines last year but independent labour groups say many more deaths are covered up.
"China has a lot of coal, has very limited supply of other fossil fuels, and even with rapid growth rates in renewables, it will be difficult to actually replace the coal in use for quite some time," said Deborah Seligsohn, a consultant with Washington-based think tank World Resources Institute.
China, which is widely believed to be the world's biggest source of greenhouse gases, has invested billions of dollars in clean energy alternatives such as wind, hydro and nuclear power to curb emissions growth.
President Hu Jintao told a September UN summit China would reduce the intensity of its carbon emissions as a percentage of economic growth by a "notable margin" by 2020 from their 2005 levels, but gave no figure.
China also set the goals of cutting energy consumption per unit of GDP by 20 percent between 2006 and 2010 and getting 10 percent of its power from renewable sources by 2010 and 15 percent by 2020.
Yet two coal-fired power plants are built every week, analysts say, to meet soaring demand for cheap energy.
"(Coal-fired power) plants can be built relatively quickly in comparison to nuclear power and renewables... and the coal industry is a major employer in China," Grieder said.
China produced 2.7 billion tonnes of coal in 2008 and was on track to exceed that amount this year, official figures show. The government has said it plans to boost output by a further 30 percent by 2015.
Valérie Niquet, a researcher at the French Institute for International Relations, said Beijing regarded coal as key to China's energy "independence".
"Thanks to it (coal), the rate of energy self-sufficiency in China is 90 percent - 20 percent more than for the OECD countries," Niquet said in a report published in September, which added "in energy, coal is the basis".
In his recent visit to China, US President Barack Obama said the United States and China wanted climate change talks in Copenhagen next month to result in a global accord that has "immediate operational effect".
But any post-2012 treaty on tackling climate change could be muted by the fact that clean energy accounts for less than 13 percent of China's energy mix.
"Even with ramped up renewable production, (China) is still facing a larger existing capacity for building fossil fuel plants than renewable plants, Seligsohn said.
"That will change over time but renewables are growing rapidly from a small base."
17 / 11 / 09 in
China to Sustain Steel Output Growth for 5 Years
Steel production growth in China will hold above an annual 10 percent for the next five years, Chinese research group Steelhome.cn said.
“Steel production in China will increase at the current pace in the next five years at least,” President Wu Wenzhang said in an interview in London today. “A robust economy will continue to spur domestic demand, like it did in the past 10 years.” Growth this year is an annual 14 percent, he said.
While steelmakers outside China cut output and jobs because of the global crisis, production in the country reached records in the four months through August as the state committed about $586 billion in spending to buoy the economy. China increased imports of iron ore, used to make steel, to a record this year.
Chinese steelmakers’ profits fell to a combined 30 billion yuan ($4.4 billion) this year from about 100 million yuan in 2008, while output rose to 570 million metric tons from 500 million tons, Wu said. It’s “unlikely” profitability will rise before 2012 as raw material and power costs increase, he said.
Contract iron ore prices may jump 14 percent next year to the second-highest on record, a Bloomberg survey of 11 analysts said. “Prices are still going up as demand from emerging countries will continue to surge,” Wu said. “We are likely to see a 10 percent rise in 2010,” he said at the Metal Bulletin Steel Success Strategies Conference in London.
China is seeking to increase iron ore supplies from Russia, Ukraine, South Africa and North Korea to about 15 percent of the total, from less than 10 percent now, Wu said. That would give China more bargaining power with producers including Rio Tinto Group, BHP Billiton Ltd. and Vale SA, which currently account for about 70 percent of iron ore shipped to the nation, he said.
Wu is a former market research director at Maanshan Iron & Steel Co., the second-biggest Chinese mill listed in Hong Kong.
30 / 10 / 09 in
China Minmetals urges industry leaders to diversify iron ore sources
China Minmetals, the country's largest state-owned metals trader, has urged industry leaders to diversify iron ore supply and improve negotiation tactics to reverse China's unfavorable position in global iron ore deals, China Daily reported Thursday.
Chinese steel mills seeking lower prices of iron ore should think more about reducing dependence on the three global miners, the newspaper said, citing Zhang Ye, vice-general manager of China National Minerals Co Ltd (MINCO), a wholly owned subsidiary of China Minmetals.
His remarks come at a time when China's steel industry is facing a de facto breakdown in iron ore negotiations for the year, while the outlook for next year's talks seems gloomy at best.
The three global miners, Brazil's Vale SA, Australia's Rio Tinto and BHP Billiton, contributed to about 50 percent of Minmetals' iron ore trading volume. But the company is looking to diversify its iron ore suppliers, he said.
Minmetals will expand its list of buyers from the current five, which include Ukraine, Chile and Russia, to eight next year. The targeted iron ore suppliers will be from North and South America, according to Zhang.
He also revealed that Minmetals is close to finalizing some overseas investment and acquisition deals, but declined to reveal specifics.
MINCO's iron ore imports will touch 12 million tonnes this year,2 million tonnes higher than anticipated, due to higher steel output, he said.
The relationship between Chinese steel mills and iron ore miners should be mutually beneficial since China is the largest iron ore consumer and the three giant miners account for 70 percent of the iron ore trading market, Zhang said.
He suggested all Chinese steel mills should join hands to exerttheir influence during iron ore price negotiations.
23 / 10 / 09 in
Argus of BHP Sees 'Unprecedented Growth' for Minerals
BHP Billiton Ltd., the world's largest mining company, said demand for minerals is on the verge of “unprecedented growth” as China and India drive consumption.
“To support Asia’s increased demand for natural resources, we need to increase our resource production,” Don Argus, 71, chairman of BHP, said today in a speech at a lunch in Melbourne.
BHP yesterday reported record first-quarter production of iron ore as steel companies resume output at mills in China, Europe and the U.S. on signs of recovery in the global economy. Commodities, as measured by the Reuters/Jefferies CRB index of 19 commodities, have gained 24 percent this year.
“We stand at the threshold of an era of unprecedented growth due to demand generated by China and, in the future, India,” said Argus, who is scheduled to retire and will be succeeded by Jac Nasser as chairman in early 2010. “One of the statistics that gives me that confidence is steel consumption per capita or steel intensity.”
Melbourne-based BHP dropped 0.4 percent to A$39.66 at the 4:10 p.m. Sydney time on the Australian stock exchange.
Commodity demand in China, the largest metals user, “is back on track in a very big way” as the world economy accelerates, CLSA Research Ltd. said last month. There’s been increasingly positive news across most economies over the past three months, BHP said yesterday.
“There is no doubt in my mind that the demand from China will still prevail,” Argus said.
Demand Growth
Australian mineral exports to China and India may rise by A$18 billion by 2015 should it maintain its share of demand growth, Argus said. China accounted for $9.9 billion, or 20 percent, of BHP’s sales in the year ended June 30, according to company data.
BHP’s profit has risen 15-fold this decade under the chairmanship of Argus, who has balanced acquisitions with development of mines and oil fields. Nasser was named as Argus’s successor on Aug. 4 and he takes the helm as commodity prices are gaining on signs economies are recovering from world recession, bolstering prospects for mining companies.
Iron ore imports by China jumped 30 percent to a record 64.6 million tons last month, the nation’s customs office said Oct. 14. The global steel market has bottomed and will grow 9.2 percent next year as demand rebounds in the U.S., Europe and Japan, the World Steel Association said on Oct 12.
China’s economy expanded at the fastest pace in a year as stimulus spending and record lending growth helped the nation lead the world out of recession, the statistics bureau said today in Beijing. Gross domestic product rose 8.9 percent in the third quarter from a year earlier. Separate reports showed industrial production and retail sales accelerated in September.
Today’s figures may spur policy makers to consider how to withdraw record fiscal and monetary stimulus next year without triggering a slowdown in the world’s third-biggest economy.
|
