Coal prices continued to decrease; financial distress and major tax shortfalls linked directly to coal mining rippled through regional economies in both China and Australia. Australia is selling MORE into the export market at INCREASING per tonne losses and taking market share from Indonesia because of the devaluation of Australian dollar and because miners are under take-or-pay contracts for port and rail services.
Although China abandoned the proposed low-CV coal import ban, regional governments are setting up other protectionist policies aimed at supporting the coal industry and cutting down on imports. Residents of Shenmu, the center of China's coal industry, rioted because of a rumor that their free health and education benefits were to be cut. At the national level, Chinese NRDC announced a series of new policies to cut massive overcapacity, especially in energy intensive industries.
A bonus for future-man Fxxxxxxx: Ford F-150 gets natural gas option for 2014
INDONESIA
Coal miners sell more in first half, but profits remain stagnant | The Jakarta Post | Major coal producers reported a significant increase in sales during the first half of the year but most failed to turn favorable profits as coal market prices plunged even deeper. Moreover, it said, a more competitive market was on the horizon as Australian producers would likely discount its coal as the depreciation of its dollar against the US dollar would still improved their performance. "The weakening of the Australian dollar seems to have played a role in lowering the production costs in Australian dollar terms and allowing Australian producers to lower prices to make their coal more competitive in the market," Adaro head of investor relations Cameron Tough said. State owned coal miner PT Bukit Asam sold 20 percent more coal in the first half of the year compared to the same period last year and listed coal miner PT Bumi Resources estimated that its sales volume rose 20.2 percent year-on-year in the first six months. Other major miners also reported two-digit growth in sales volume, however, they all experienced the drop — of around 20 percent — in the selling price, which caused had a negative effect on their respective net profits.
RUSSIA
Mechel Announces the Beginning of Coal Supplies to China by New Railway Route - Yahoo!7 Finance Australia One of the leading Russian mining and metals companies, announces that it has started supplying coal concentrate to the People's Republic of China by rail through new border checkpoint Makhalino — Hunchun.The first cargo train was dispatched in early August along the international transport corridor linking the south of Russia's Primorye Region with China's Jilin Province. The first 30-wagon convoy delivered Yakutugol Holding Company OAO's coal to Chinese recipients through the new border checkpoint Makhalino (Russia) — Hunchun (China). Over 200 officials from Primorye Region, Khasan District, the Far East Railroad, Russian Railways OAO and Chinese Railways attended the opening ceremony for the new border checkpoint. "Until now, Mechel made major coal deliveries to Chinese customers only through sea ports. The opening of this railroad route will enable Mechel to diversify its logistics and make better time on deliveries to China, which is the world's largest consumer of this type of fuel," Mechel Mining Management Company OOO's Chief Executive Officer Pavel Shtark noted.
US
Goldman Sachs says coal-export terminals are a bad investment - Grist | Over the period 1990-2011, global demand [for thermal coal] increased by 2.5 billion tonnes, equivalent to an average annual growth rate of 3.0%. However, growth was highly concentrated in just two countries: China alone accounted for 72% of the global increase in coal burn, while India accounted for an additional 17%. Excluding those 2 countries, global consumption was only growing at an annual rate of 0.7% per year.We believe that thermal coal's current position atop the fuel mix for global power generation will be gradually eroded by the following structural trends: 1) environmental regulations that discourage coal-fired generation, 2) strong competition from gas and renewable energy and 3) improvements in energy efficiency.The prospect of weaker demand growth (we believe seaborne demand could peak in 2020) and seaborne prices near marginal production costs suggest that most thermal coal growth projects will struggle to earn a positive return for their owners.
State EIS on Cherry Point coal-exports facility to consider "end use" coal burning in China as well as regional rail impacts - The News Tribune / The Olympian | An environmental review of a proposed coal-export facility at Cherry Point will take into account pollutants emitted by the facility, rail traffic carrying coal to the facility, and also the impact on greenhouse gases from coal burning in China, India and other export destinations. The scope of environmental review was announced Wednesday by the Department of Ecology, Whatcom County and Army Corps of Engineers, which are co-leading the environmental review. The broad look at "end use" impacts of off-shore coal burning is unprecedented for Ecology, which alone is insisting on that review under its administering of the State Environmental Policy Act.
Coal at Risk as Global Lenders Drop Financing on Climate - Bloomberg | The world's richest nations, moving to combat global warming, are cutting government support for new coal-burning power plants in developing countries, dealing a blow to the world's dominant source of electricity. First it was President Barack Obama pledging in June that the government would no longer finance overseas coal plants through the U.S. Export-Import Bank. Next it was the World Bank, then the European Investment Bank, dropping support
AUSTRALIA
Australia's coal miners feel the heat as China investment cools - FT.com | The impact of falling prices is stark. Data from the Bureau of Resources and Energy Economics project Australia to have shipped 330m tonnes of coal in the year to June 2013. However, it will receive A$17bn less in revenues than it did in 2011 when it sold 300m tonnes of coal, and almost A$17bn, or 30 per cent, less than in 2009 when it exported 260m tonnes. The impact on mining groups has been no less extreme. In a recent report, Deutsche Bank estimated that the cost bases of BHP Billiton's and Rio Tinto's Australian coal operations had increased 320 per cent since 2005. That was manageable while coal prices were high because Australian producers could still generate healthy margins. But that is no longer the case. ...The crisis in the coal industry has become the subject of fierce debate in Australia. Some, such as leading Australian economist and China expert Ross Garnaut, put the blame on the big mining groups, for over-investing while prices were rising and ignoring the potential for weakening demand, particularly from China.
Australian PWCS terminals ship 2.6 million mt coal to China in July - Platts | Australia's Port Waratah Coal Services shipped 2.6 million mt of coal to China, the company said Thursday. The coal terminal operator achieved its highest monthly throughput last month at 10.4 million mt despite intermittent strikes. China was the destination for 25% of coal shipments from the PWCS terminals at Newcastle port in July, compared with 28% in June on a lower throughput figure of 9.24 million mt, according to an exports report from the company.
China powers ahead in hidden tender for brown coal millions - The Age | A major Chinese power company is in line to win millions of dollars in federal and state government grant money to develop Victorian brown coal. It is understood the Shanghai Electric Group is among a handful of firms that have risen in the pecking order for grants under the $90 million joint program to help fund ''pre-commercial'' demonstration projects using technology to upgrade brown coal in the Latrobe Valley to a higher standard, such as black coal, or convert it into oil or fertilisers. To date the selection process has been shrouded in secrecy. ...The most prominent is state-owned Shanghai Electric Power through its local subsidiary, Shanghai Electric Australia Power & Energy Development. Shanghai Electric is listed on the Shanghai Stock Exchange and has a company value of $1.5 billion.
CHINA
County in Shaanxi in a Deep Hole as Mining Bubble Pops - Caixin | Shenmu rolled in cash when prices for its coal soared in recent years. Now private bankers are fleeing and the local government is in a bind. A financial crisis triggered by falling coal prices is brewing in Shenmu County, in the northwestern province of Shaanxi. Construction projects have been halted, universal health care has run into payment problems and many private bankers have disappeared in the last few months, all indications that another story of legendary development is now just a bubble bursting. The richest county in the province, Shenmu is blessed with abundant coal reserves. Buoyed by rising prices in the last decade, Shenmu enjoyed the birth of a vibrant mining industry. Accompanying this were rampant private lending, skyrocketing real estate prices and government largesse in social spending. The county's 400,000 residents were the happy recipients of China's first universal health-care scheme and free education for 15 years, six more years than the national minimum. All of this came to a sudden stop when coal prices went south two years ago ... On July 26, Lei Zhengxi, the county's Communist Party secretary, was removed from his post.
Death Penalty for Polluters: China's Use of Criminal Law for Economic Ends - CFR Asia Unbound| Although pollution, food safety, and financial markets do not at first glance appear to be connected, taken together, the Chinese government's rhetoric suggests a more robust use of criminal law for economic ends. As explained in more detail in my paper, China's instrumental use of criminal law is not new. However, recent developments indicate a possible turn to a sustained, sophisticated, and resolute response to economically detrimental activities, not the sporadic crackdowns that have thus far punctuated the decades of China's rapid economic growth.
Pain of drop in China coal imports isn't evenly shared: Clyde Russell - Reuters | ...But it's not necessarily the higher-cost suppliers that are being squeezed out of the market...Australia has overtaken Indonesia as the top supplier of coal to China, with shipments from the Southeast Asian nation totalling 35.263 million tonnes in the first half, a gain of just 8 percent on the same period last year...However, Australian miners are likely to continue producing as the loss from maintaining output is less than that for stopping, given the prevalence of take-or-pay shipping contracts (they became common in order to give financial backing to the developers of multi-billion dollar railway and port infrastructure)
Transforming China's Grid: Will Coal Remain King in China's Energy Mix? - The Energy Collective | Interesting charts and stats - the overview of entire sector is good reading// ...Huaneng, one of China's largest electricity generation companies, now reportedly controls 40 billion tons of reserves, roughly ten times China's annual production... China's coal plants are also now more efficient on average than the U.S. coal fleet...Retiring a 600 MW state-of-the-art plant before its economic lifetime comes at a much steeper price. As a result, the new generation of modern coal plants built in recent years may still be operating in 2050.
China to extend resource tax reforms to cover coal - Interfax |China – the world's largest producer, buyer and user of coal – is advancing plans to tax its main energy source by value of output rather than volume, as part of long-mooted resource tax reforms that saw a similar system implemented for oil and gas less than two years ago. "China will push forward resource tax reform comprehensively… in the next step we plan to change tax collection for resources like coal to value-based, and increase the tax rate by an appropriate level," said Lou Jiwei, head of China's Ministry of Finance (MOF), at the fifth US-China Strategic and Economic Dialogue earlier this month. Note: Loose translation that overstates the certainty of Lou's announcement. Lou said "we will study (yanjiu) value-based taxes at a higher level." My point being the certainty of change here is exaggerated.
On August 1st, Shanxi will stop collecting environment recovery deposit and industry transformation funds (this was 15 rmb / tonne back in 2007) from coal producers temporarily and this is being interpreted as a signal that the government is going to save the industry.
China won't have a simple shale gas revolution, achieving industrial scale will take at 5 - 10 years. Obstacles: 1) fracking uses lots of water, China is short of water; 2) industrial structure (no small and medium size companies to spread out and take risks as is done in US and, although it is not mentioned here,there are no private mineral rights and no small/medium-sized oil and gas exploration and service companies in China); 3) low, rigid prices although price reform should help provide better incentives; and 4) the difficulty in attracting private investment vs govt driven, directed subsidized investment that created problems in PV. Aside: Given non-existent private minerals rights, lack of local expertise / smaller companies and pricing risks, seems like government will be subsidizing the big three to undertake this revolution. Hard to imagine it will look anything like the US revolution - the industrial ecosystem and legal frameworks are entirely different - a shale gas revolution with Chinese characteristics perhaps
China's Energy Use Lags With Economy - RFA Michael Lelyveld | China's energy sector has been showing signs of slower growth, sending mixed signals about the state of the economy. Most energy indicators for the first half of the year have been below the official economic growth rate of 7.6 percent, suggesting that real growth could be considerably lower than figures reported by the National Bureau of Statistics (NBS). Solid work from Michael Lelyveld, worth reading.
Coal comfort for Shanxi in Li clout - HK Standard |The governor of Shanxi has asked the mainland's five big power firms to acquire more coal from the province as falling prices are hurting the region's economy. Li Xiaopeng met with the management of state-owned Huaneng Power (0902) and China Guodian and secured a long-term contract, according to 21st Century Business Herald. Li, eldest son of former premier Li Peng, will also try to convince Datang Power, Huadian Power and China Power Investment to set up power stations in Shanxi as well as use local coal in them, said the report. Li, a veteran in the power industry, was previously chairman of Huaneng Power. Li's sister, Li Xiaolin, is chairwoman of China Power (2380).
With the gradual decline in coal prices, thermal power producers have gone from severe losses to making profit