China and Indonesia sign £1bn deal for thermal coal imports
China will buy £1 billion worth of thermal coal from Indonesia next year following the signing of a trade deal between the Indonesian Coal Mining Association (APBI) and China Coal Transportation and Distribution, according to a Reuters report.
"It is hoped that there will be an increase of coal exports to China by 200 million tonnes in the coming year," the APBI says in a statement. "The target quantity will be reviewed every year."
Indonesia, the world’s top exporter of thermal coal, has resorted to diplomatic channels to promote coal sales around Southeast Asia, particularly in Vietnam, as exports to China have slowed.
China’s imports from Indonesia, the world’s biggest shipper of thermal coal used in power plants, dropped by 24.5 percent in the first 10 months of 2020 to 86.88 million tonnes, compared to 115.03 million tonnes during the same period last year, according to data from Refinitiv.
However, according to an analysis published by Wood McKenzie, China’s thermal coal imports are forecast to increase in December this year.
According to the market analyst, seaborne thermal coal imports will grow from 9.5Mt to 20Mt in December, with the new figure much higher than 8.8Mt recorded in September this year, or the 17.7Mt average for the first nine months of the year.
In Wood McKenzie’s view, the increase will help ease domestic prices and strengthen seaborne prices. It explains that the massive increase in imports is due to a series of factors that have hindered the National Development and Reform Commission’s goal of relying more on local suppliers in order to stabilise the price for QHD5500 to below £68.18/t.
“The QHD price has stayed at above £68.18/t since late September. The market news is that the NDRC asked coal miners to increase supply at the end of September and that domestic supply increased in October to 336 Mt, compared with 331 Mt in September, or 325 Mt last October,” the analysis reads.
“But mine accidents in Shanxi, Shaanxi and Inner Mongolia have prevented output from increasing further, and the coal price has remained around £69.88/t.”
Despite the accidents, coal imports dropped to 14 Mt in September, the lowest since May 2011.
However, according to the analyst, the expected increase, which NRDC would use to balance the market, is a negative measure.
“We do not think 20 Mt of additional coal should be purchased for delivery to China in December. Firstly, it would cause both seaborne coal prices and freight to immediately spike, which is not what the Chinese government wants. Secondly, unloading imported coal in Chinese ports will not be easy any time soon as we estimate the ports are full of imported coal yet to clear.
Finally, coal generation in the coastal region is weaker this autumn than last because of strong hydrogeneration. The coal inventory is higher than last year, making it difficult for gencos to stock the imports flooding in,” it points out.
Low carbon world needs $1.7trn in mining investment
According to a new report from consultancy Wood Mackenzie, mining companies need to invest nearly $1.7trn in the next 15 years to help supply enough copper, cobalt, nickel and other metals needed for the shift to a low carbon world.
Cutting carbon emissions
The United States, Britain, Japan, Canada and others raised their targets on cutting carbon emissions to halt global warming at a summit in April hosted by US President Joe Biden.
Meeting those targets will need large-scale deployment of electric vehicles, storage for power generated from renewables and electricity transmission, all of which require industrial materials, such as lightweight aluminium and metals used in batteries such as cobalt and lithium.
Wood Mackenzie analyst Julian Kettle calculated miners needed to invest about $1.7trn during the next 15 years to “deliver a two-degree pathway - where the rise in global temperatures since pre-industrial times is limited to 2°C”.
“At an industry level, there seems to be reticence around investing sufficient capital to develop future supply at the pace and scale demanded by the energy transition (ET),” he said.
Mining firms are wary of making heavy investments after their experience of the last decade when they invested in new capacity just as demand peaked, leading to a collapse in prices and revenues. They also need to please investors, who are unlikely to want to see dividends diverted to capital spending.
Rising demands of investors related environment, social and governance (ESG) issues further add to the challenge.
Australia, Canada and Western Europe carry a low ESG risk but some of the best resources are in high-risk areas, such as Democratic Republic of Congo, which sits on about half the world’s cobalt reserves according to the U.S. Geological Survey. “Given the need to meet tough decarbonisation and ESG targets, Western governments, lenders, investors and consumers will need to get comfortable operating in jurisdictions where ESG issues are more complex,” Kettle said.
Kettle said government support was needed to help miners comply with ESG issues to ensure production from high-risk areas was conducted in an acceptable way to consumers.
“Then, and only then, will the West be able to secure sufficient volumes of the raw materials needed to pursue the energy transition in the timescales envisaged.”