Coal Markets: India demand for coking coal to rocket

BHP Billiton has predicted a booming market for its Australian metallurgical coal operations as India begins to suck in imports for its fast-growing steel industry.

The disclosure, which has gone largely unreported, was made by BHP marketing chief Mike Henry at an investor presentation in Melbourne. At the same time, the company unveiled an extra US$500 million a year productivity improvements – partly to protect its progressive dividend policy during a period of falling commodity prices.

Henry said: “The Indian growth story is really starting to gain traction, with the election of a new government there that’s committed to improving infrastructure and to supporting the private sector in achieving and sustaining growth.”

He said investment in steel capacity in India was “gaining momentum”, with an additional 17 million tonnes of annual steel capacity committed, and to be commissioned by 2016 alone. Unlike in iron ore, India does not have indigenous resources of high-quality hard coking coal, “and therefore they’re going to need to meet their needs via imports, and we are well positioned to supply this growth in metallurgical coal demand”.

The World Coal Association said: “Global steel production is dependent on coal. 70% of the steel produced today uses coal. Metallurgical coal – or coking coal – is a vital ingredient in the steel making process. World crude steel production was 1.4 billion tonnes in 2010. Around 721 million tonnes of coking coal was used in the production of steel.”

Indian state consortium International Coal Ventures Ltd (ICVL) plans to invest US$500 million in Mozambique to set up a logistical support network for mining operations in the next two to three years, said a senior official from the consortium.

On 28 July ICVL signed an agreement with Anglo-Australian group Rio Tinto to buy all of the group’s coal assets in Mozambique, including 65 percent of the Benga mine and 100 percent of two other projects for US$50 million.

“There are logistical problems. The mining operation is losing money now but as there are coal reserves estimated at one billion tons, it is a strategic investment to apply US$500 million in the next two to three years to resolve these problems,” he said.

Henry was also bullish on copper, saying “the copper story remains very strong. Demand for copper is expected to increase from 27 to 40 million tonnes by 2030 and this will be driven by electrical and building construction, which together comprise around half of all world copper demand, as well as production of consumer goods, including household appliances and automobiles.”

“BHP is pushing ahead with plans to demerge non-core assets such as nickel, aluminium, manganese and some thermal coal, a process due to come to fruition in 2015”

He said while China would remain the single most important driver of demand, BHP saw consistent growth in other regions. On the supply side, while scrap will grow by 30% to 2030, significant fresh, primary supply of copper would still be required to meet demand growth.

“And compounding the increased requirement for supply to meet outright growth and demand is the grade decline, which is going to impact the current supply base, and that’s expected to take about 5 million tonnes off of the current installed capacity to 2030.”

Henry said the cost base in South America, which is the largest exporter of copper, will be further impacted by the increased need for desalinated water and increased ore hardness, which will lead to higher power consumption. It was this combination of the need for greenfield capacity and a structurally challenged cost base that bode well for copper prices longer term, he said.

BHP as well as Vale and other giant miners are pushing ahead with plans to demerge non-core assets such as nickel, aluminium, manganese and some thermal coal, a process due to come to fruition in 2015. (Edited by the Post, originally from Mining-journal)