fundamentals/factsCoking coal has quickly emerged as one of the handful of commodities that are both in short supply and in critical need by certain industries, in this case the integrated steel sector.
China several years ago became the largest steel producing nation and now single handedly produces more than half of the world’s steel, a large majority of which is carbon steel as opposed to specialty steel.
Even so, more steel capacity is being built. Currently there are at least four major new projects planned or under construction in coastal regions of China. These include the WISCO Fangcheng project in Guangxi and Baosteel’s Zhanjiang project in the southeastern portion of China, and the Bayuquan and Caofeidian projects in the northeastern portion of the country.
The new projects, which will add an estimated 100 to 120 million tonnes per year of capacity, generally utilize larger blast furnaces to take advantage of increased efficiencies and economies of scale. Such blast furnaces require high quality hard coking coal to run at optimum efficiency. Generally, the larger the furnace capacity, the less tolerance it has for ash and sulfur components within coking coal. The harder the coal, the lower the percentage of these residuals it generally contains.
Chinese coking coal imports meanwhile have gone from practically zero in 2008 to about 30 million tonnes in 2009 and an estimated 45 million tonnes last year. Estimates for 2011 are that China will import 50 million tonnes.
China’s current GDP growth target is 7%-8%, although recent indications show growth above 8%. The country’s industrial production growth rate is much higher, in a range of 10-15%, according to recent estimates by Goldman Sachs. Increasing demand for coking coal is assumed to be a long-range trend for China.
Exacerbating the situation is the fact that China, while it has ample reserves of thermal coal, has relatively low reserves of coking coal, estimated at approximately 28% of total coal reserves. But only 10% of total reserves comprise high quality hard coking coal.
Currently most of China’s coking coal comes from Shanxi province, where production ranged from 150 to 170 million tonnes in 2005-2008 but fell to about 100,000 tonnes in 2009. In fact, production in the province had already begun to decline sharply after 2007.
There are plans for recovery in Shanxi, but they are progressing very slowly according to industry observers. Additional supplies of coking coal come from Guizhou, Henan, Hebei, Yunnan and Anhui provinces, but production from each is only 10 to 40 million tonnes per year.