Climbing competition over Coal
May 5, 2010

A massive appetite for power and construction is swiftly raising the demand and consequently price for coal across China and India. A lack of quality in addition to quantity of coal in both countries further means that both China and India are struggling to import more, driving up not only current prices but that of coal futures too.

Price and profits are not the only factors affected as coal consumption soars. India and China are changing the global game of coal trade. As a result of their climbing consumption levels, new mines in the US, Russia and Columbia are being tapped to add to supplies from Indonesia, Australia and South Africa, international mergers of coal mining companies are taking place and shipping companies are reaping in bulk profits. Just as India and China revolutionized the global iron and steel industry a few years ago they doing it again with coal.

Roughly 70 percent of China and 50 percent of India’s energy production comes from coal-fired power plants. Due to fuel their growth engines, the power-generating capacity in both countries is expected to expand another 10 percent this year. Seeing the surge in demand, China a traditionally coal exporting country, imported 165 percent more this March than a year earlier. India too imported 1.4 million metric tons (Mt) from South Africa in February this year, double the January figure of over 720,000 Mt. Coal imports in 2010-11 are estimated to top 85 million Mt up from 70 million Mt in the current fiscal year.

“Though local production has increased by about 8 percent, yet energy requirements have risen by 15 percent,” Union coal minister Sriprakash Jaiswal told the Energy Tribune. The import figures represent almost 15 percent of India’s coal consumption of over 600 million Mt. More coal imports are almost certain in the future. The Indian government estimates that imports could reach 200 million Mt by 2017.

Meanwhile, China’s demand for coal has risen so dramatically that the nation has moved from being a net exporter of coal to a net importer. In 2003, China exported 83 million metric tons more than it imported internationally but by 2007, that changed. China recorded net imports in some months, a development that helped send global coal prices to record highs.

However last year was the game changer, China imported nearly 126 million Mt and exported just 22 million Mt, consuming almost a fifth of global coal production. The trend continues this year, with coal imports in the first three months of 2010 jumping 226 percent from a year earlier to 44.4 million Mt. That is still a fraction of China’s overall consumption, which amounted to 1.4 billion tons of coal in 2008.

As a result of the high demand, prices have soared. Last week, the benchmark price at Australia’s Newcastle port for thermal coal—the type burned in power plants—hit US$108 a metric ton, the highest since October 2008 when the same coal was valued at US$180 a metric ton, according to globalCOAL, an international trading platform. However as supply dwindles and demand rises, it won’t be too long before October 2008’s price is breached feel experts.

Coal price rises are also guaranteed probably sooner than later as the quality of coal mined domestically in both China and India is not high-energy content coal, the kind that is needed to generate green electricity. Low-grade coal available en masse in China and India produces sulfur a pollutant.  With both nations ratifying towards cleaner energy for a greener tomorrow, using this coal is unsustainable.

What will need to be seen in the future is how comfortably China and India compete for another fast depleting natural resource. Will growth and development in both nations be sustainable at such high prices and how will this new competition raise the stakes between the two neighbors?

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