US Coal Exports
Exports Economic Contributions Report
Apr 29 2014

Long Term Steel Demand to Drive Coal Exports (Platts)

Met coal may struggle to meet long-term steel demand: analysts

The expected growth in global steel demand through 2050 may require a tripling of current seaborne metallurgical coal exports, which may be tough for miners to deliver, according to forecasts delivered Monday by two consultants.

An annual steel production growth rate of 2.6% through 2050, leading to output of around 4.4 billion mt/year, would likely entail an 815 million mt/year boost in met coal demand to 1.8 billion mt/year, H&W Worldwide Consulting’s Neil Bristow told the Eurocoke Summit in Edinburgh.

Bristow used a long-term steel forecast provided earlier Monday by Philip Tomlinson, who heads his own practice after previously heading CRU Group’s consultancy arm.

Seaborne demand would rise by around 500 million mt/year, from around 270 million mt/year currently, he said.

The seaborne total includes PCI coals, used for injection to reduce met coke consumption, and takes into account alternative steelmaking such as via the melting of ferrous scrap as well as nascent technologies for creating pig iron without met coal.

“The industry has a real challenge meeting this … on a limited growth in steel,” Bristow said.

The former BHP Billiton coal analyst said that coke oven technology needs to anticipate the coming decline in coal quality grades and new resources that will be typically of lower grade than the range of coals — led by premium HCC brands — currently mined.

He highlighted washability, dealing with new blends for impurities, and vitrinite content, with how this impacts cokemakers.

The depletion of high quality reserves and wider policy-and-attitude barriers to new mining was also a concern, he said.

To meet the forecast increase in met coal demand, Mozambique would have to become a major producer, along with Mongolia, there would need to be more exports from Russia, and Indonesia would possibly need to boost met coal extraction in Kalimantan, Bristow said.

Meanwhile, “the US has major challenges” based on high costs in some areas, he said.

CHINA STEEL DECLINE

The two analysts both expect Chinese steel demand and met coal consumption to decline as the country’s growth rate stabilizes and then possibly declines, in addition to the country’s move to increased use of scrap-based steelmaking.

India may prove to be the biggest growth driver in the coking coal market, taking over from China, with the added difference that it has little domestic met coal unlike China, which is largely self sufficient, Bristow said. Steel production growth in India looks like it may counter China’s longer-term decline, Tomlinson said.

“It’s not a question of if China slows, but by how much,” Tomlinson said, adding that lower capital productivity than foreseen and unsustainable investment rates would inevitably lead to lower Chinese steel output.

Mexico and Indonesia were highlighted by Tomlinson as bright prospects for steel production growth. Mexico may be the biggest driver in Latin America, aided by its proximity to North America while “re-shoring” of manufacturing from Asia takes effect, he said.

Brazil has, time again, underperformed prospective future expectations for its steel industry with high costs and a strong currency, he said.

“Brazil has outgrown the commodity boom, its savings and investment are not high and it’s a very expensive country,” he said, citing advice he gave to project developers in the country. “In Latin America, Mexico has better prospects.”

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