Rio Tinto’s CEO Thinks China is Still the Key to Future Demand for Coal

Dec. 17, 2012 - PRLog -- The urbanisation of a further 2 billion Chinese citizens by 2030 will continue to drive the nation’s hunger for commodities such as coal and iron ore, according to Rio Tinto chief, Tom Albanese.

The Rio Tinto boss told an audience at the company’s investor seminar recently that the Asian powerhouse would remain the key driver of commodity consumption on the seaborne market until at least 2030.

Post 2030, the miner is expecting to target India and South East Asian economies as China’s consumption of commodities such as coal and iron ore begin to taper off and then decline.

As China continues its industrialisation process, which many major miners believe is only halfway complete, Rio believes the country’s steel consumption and demand for both thermal and metallurgical coal is set to grow – albeit at a slower rate than in recent years.

Fellow tier one miner BHP has recently flagged a cooling of the Chinese economy and said it doesn’t expect another repeat of the astronomical growth seen in coal demand post Global Financial Crisis, however a more sustained and steady rate of growth should occur as the middle class revolution and industrialisation continues to materialise in the country.

Running an eye over this year’s performance of the two largest coal miners in China reflects the country’s reversion to a more tempered growth rate in terms of appetite for raw materials.

The top Chinese coal producer, Shenhua Group, reported total output of 254.8Mt of saleable coal from January to the end of October this year, representing a rise of 9% year-on-year. A leading financial analyst told Energy Publishing even if companies are not making a huge margin, it is important to maintain production rates.

“Large producers need to retain their market share so they may choose to cap production instead of increasing it, but will tend to avoid making any major cutbacks to production,” the analyst said.

“A lot of major suppliers have long-term contracts in place and would not want to jeopardise these, and most are expecting some sort of price and demand recovery over the short to medium term,” the analyst continued.

Meanwhile China’s second-largest producer China Coal reported fairly similar results in terms of production growth for the first ten months of the year, producing 90.98Mt of product coal during the period, an increase of 6% y-o-y.

Scaling back forecasts to the short term, many global coal producers are pinning their hopes on a second stimulus package being released by the new Xi Jinping-led Chinese government. There is optimism that such a package would revive coal prices which have been in a state of perpetual freefall for most of this year.

According to Energy Publishing’s NEX index, spot thermal coal FOB Newcastle has not been above the US$100/t mark since May 10 this year, and spot hard coking coal dipped below US$200/t on the Energy Publishing CCQ index at the end of July – plummeting to $159/t at the end of November.

As miners around the globe continue to idle operations, cut staff and reduce capital investment, once again all eyes are on China for renewed growth and hopefully an uptick in pricing in 2013. But miners shouldn’t hold their breath according to IHS CERA analyst Dr James Stevenson, who believes there will no respite for producers in 2013.

“We have had massive Asian demand growth, yet we have managed to oversupply it... so despite demand being at record levels prices are at rock bottom,” Stevenson told a recent coal conference, Fairfax Media reports.

More information can be found in the China Coal Report which presents weekly updates on both the producer and consumer sides of the Chinese coal market.  With information on trade, transport and policy updates, the China Coal Report provides comprehensive coverage for anyone dealing with the Chinese coal market.

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