February 17, 2020
The life and death of world coal mining depends on China. The Wuhan coronavirus has reminded to the world where the key production facilities of a wide range of goods – from smartphones to vehicles are located in that area. While the mass media and social networks are trying to calculate the number of infected people and the geography of spreading of the malady, due to the happenings, the oil prices have dropped, and financiers started correcting their own forecasts on economy growth rates on countries and profitability of individual sectors. However, the natural gas market is sufficiently stable, and the oil price variations are within the average statistical values, this year may become the real high moon for the world coal mining industry. Moreover, the salvation of the industry or its final decline will be dependent on the Celestial Empire.
The end of the year 2919 was extremely unsuccessful for coal miners. We should firstly see that during the first six months, the black gold prices were stable: in March, 1 ton of coal cost 95 US dollars. However, by the end of the year, the quotes saw some decline: in November-December, the price label dropped to the level of 70 US dollars, which is just at the borderline of financial viability. This caused collapse of the internal coal prices in the USA, which is one of the world largest coal miners and exporters. So, in January 2020, American coal mining companies sold their consumers the coal at the prices from 36 to 53 US dollars per ton – actually at a loss to themselves.
We should note that here we are talking about the energy generating grades of coal. High calorie grades and the grades that are used for coking, survived the market price variations without any negative consequences, while near to the Christmas holidays, the per ton price was around 180 US dollars. Under pressure of global situations, the steel production also saw some decline in the beginning of 2020, but this tendency and its consequences will have to be analysed yet.
The failures, which the coal producers of Australia, Wyoming and Kuzbass are facing, were caused by an entire set of factors. Firstly, of courses, it is the widely advertised decarbonisation and shift to renewable energy sources by most of the countries in Europe. The major supplies simply could not find new sales markets and reset their logistics networks. Secondly, this winter is anomalously warm. By the middle of February, the coal fired heat generating power stations have sufficient stock of the fuel, i.e., they did not have to purchase additional amounts of resources, which they usually did. While the mining companies, who had hoped for standard sales volumes, have extra stock of the unsold product. The market reaction was quite expected: the prices went down. However, this does not necessarily mean the end of the coal era, and the situation may return to its initial parameters.
There is no sensation or any conspiracy, if we take the key factors. The ecological activists love to repeat that the PRC also joined the world trend and is also refusing to use coal. They nicely wrap this principle with the amounts of Chinese investments into renewable energy both inside the country and abroad. From a side, it may really seem that mining dynasties in Australia and Kuzbass should hang their mine horse drivers and learn to become hairdressers. But the stubborn facts say otherwise. The history of formation of China and development of the “Chinese economic magic” is closely associated with the growth of the industry types, which require daily supplies of fuels as coal, oil and gas.
In the end of 1950s, the governing party, headed by Mao Zedong took a unique decision: the country’s development vector had to be changed from rural to industrial development. The program of so called small metallurgy was developed, which caused to build semi-artisan blast furnaces almost in each household yard. The purpose was ambitious: to double the smelting scopes annually to reach Great Britain in 15 years. Of course, the program failed, although its initial results were very hopeful. The quality was the problem – very low quality cast iron was produced, which would not have replaced the industrial product.
But the Chinese leaders drew several key conclusions from this. The thing is that reforms can be carried out, but for shifting to a new level, the people’s enthusiasm is not enough: a centralised development program is required. While the only resource, which was available for China was outside the scenes and owing to which the historical experiment was carried out: it was coal. The PRC internal resources of coal are impressive: 52 billion tons of brown coal and 62 billion tons of bituminous coal. The Red Dragon internally mines more than five following countries-exporters do together. For instance, in 2018, the Chinese coal miners produced 3.5 billion tons of hard fuel. This is six times more than was mined in Australia, and nine times more than it was mined in Russia.
While the first three exporters (Australia, Indonesia and Russia) only import their coal, while China imports massive amounts of coal, and this trend is constantly growing: in 2015 – 204 million tons, 2016 – 255, 2017 – 270 and in 2018 – 281 million tons of coal. They primarily purchase coke and anthracite for internal resources of these are limited in China.
One cannot hope that China will pick up its wit and start waving slogans around the UNO building on Fridays. By the end of the current five-years’ program, the PRC will commission 121 coal powered electric power stations at a total capacity of 148 Gigawatt. Even forgetting about the existing infrastructure, the new facilities will be producing more heat and electricity than their “colleagues” in the entire Europe. For the past 20 years, Chinese coal powered energy generation quadrupled – from 200 to 972 Gigawatt.
For the avoidance of accusations for political bias, we should remember what achievements the PRC is demonstrating in the field of renewable energy resources (RER). In 2017, solar power stations at a total capacity of 53 Gigawatt were commissioned, while in 2018, this value dropped to 47 Gigawatt, and the government seriously reduced the subsidies. According to the estimates of Eric Loo from GCL System Integration Technology, the company, responsible for implementation of the Chinese RES-projects, in the first six months of 2019, solar generation grew by 11 Gigawatts only, while the sector was generally left “critically underfinanced”.
It would not be correct to put a full stop and draw a firm conclusion.
The world coal market is not in its best era, but warm winters do not occur every year, and the growth of the GDP of the country should be maintained. Even at the last year’s level of prices, coal is very competitive as a basic fuel; therefore, the developing economies like China and India will not refuse from using coal. The laws of economy are cruel and relentless.
Translated by Muhiddin Ganiev