Sept/Oct 2011

Industrial strength

Metallurgical coal operators and developers focused on growth

By A. Lopez-Pacheco

Barges loaded with metallurgical coal head towards the Port of Mobile, Alabama, where it will be loaded onto ocean-going vessels bound for ports in some of the world’s fastest growing steel-producing nations | Courtesy of Walter Energy Ltd.

The infrastructure boom is here. According to CIBC World Markets Inc., it will be worth an estimated $25 to $30 trillion of new infrastructure investment in the next 20 years. In part, the boom is due to world governments, including Canada’s, responding to the 2008 global financial meltdown and the first international recession by pledging trillions to infrastructure spending in order to create jobs and stimulate economies. But also, developed nations have aging infrastructures, and emerging nations need to expand and build new infrastructure to keep up with growth and demands. One way or another, the infrastructure will be built.

And where there is infrastructure being built, there is a need for high-quality coals, which, along with iron ore, are the key ingredients needed to make steel. In fact, according to the World Coal Association, more than 60 per cent of total global steel production is dependent on metallurgical coal.

From the perspective of steel manufacturers and their customers, there is a huge problem. “There is not enough metallurgical coal production in the world to satisfy the growth in demand,” says Robin Goad, president and CEO of London, Ontario-based Fortune Minerals Limited, whose Mount Klappan project in northwest British Columbia contains 2.8 billion tonnes of anthracite coal, valuable as a pulverized coal injection (PCI) coal in blast furnaces because of its low volatility and high energy content.

“There are large deposits in Mongolia and also in southern Africa, but Indian crude steel production is anticipated to quadruple in the next decade,” Goad says. “Brazilian crude steel production is anticipated to quadruple over the next 20 years. In Japan and South Korea, growth in the demand for coal is increasing at about three per cent per year and some of the traditional suppliers are no longer supplying.”

Where will it come from?

Until just a couple of years ago, China was the world’s largest producer of anthracite coal, but in 2009, the country announced it would no longer export its premium PCI coal. Last year, according to the World Coal Association, China imported an estimated 48 million tonnes of coking coal.

The world’s second largest producer of anthracite coal, Vietnam, announced earlier this year that it was raising tax on coal exports to 20 per cent from 15 per cent. As well, it would gradually cut coal exports to three million tonnes per year by 2015 from 16.5 million tonnes this year, while raising imports to six million tonnes of coal per year by 2015.

In the last decade, the price of metallurgical coal has risen, on average, from US$40 per tonne to close to US$230 per tonne in 2011. According to The AME Group, a global firm of economists in the metal and mineral industries, for the more than 20 metallurgical coal mines in Canada – both in operation and in development – that is good news. The combined products of those mines in production make Canada the second largest exporter of metallurgical coal – at least that is until last year, when it was bumped down to third place by the U.S.

“Traditionally, the U.S. is a large metallurgical coal producer, but we call them a swing producer,” says Kevin Stone, senior commodity analyst, Natural Resources Canada. “When the market is good, they export more. When it’s not so good, they export less. Right now, the market is good.”

In 2010, Canadian companies exported 8.6 million tonnes of metallurgical coal to Japan, 5.3 million tonnes to South Korea, 4.3 million tonnes to China, 1.6 million tonnes to Brazil, 1.4 million tonnes to the U.S., 1.3 million tones to Germany and one million tonnes to Italy, as well smaller amounts to 13 other countries. And metallurgical coal comprised 83 per cent of all Canadian coal exports.

Australia is the world leader in metallurgical coal production and exports, and everyone else, says Stone, is way behind the top three exporters. “And I don’t see that changing, at least in the next three to five years,” he says.

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