China to be top coking coal importer – consultant - MarketWatch

China, until recently a net exporter of coking coal, is set to become the world's biggest importer of the steelmaking ingredient by 2015, causing "dizzying" upwards pressure on prices, a Brazil-based coal industry consultant told Dow Jones Newswires.

"Five years ago, China was a net exporter of coking coal, and about three years ago started to import small tonnages, such as 4 million to 5 million tons a year," said Luiz Sarcinelli, a Rio de Janeiro-based coal consultant with Sage Consultoria Tecnica Ltda. "But now, China's importing 40 million tons a year and could overtake Japan, which imports around 100 million tons, in 2015, to become the world's biggest importer."

China-led demand may cause coking coal prices to spiral higher over the next five years due to supply limitations, according to Sarcinelli. China-led demand has already prompted a sixfold price increase over the last decade to about $330 a ton, according to another Brazil-based consultant, Otacilio Pecanha of Negotiare Consultoria.

China is the world's biggest producer of coking coal, producing more than 400 million tons a year, but that isn't enough to satisfy the needs of its growing steel industry. Last year, China produced 626 million tons of crude steel, almost half the global output of 1.413 billion tons, according to the Brussels-based World Steel Association.

Analysts at CRU Group and Barclays Capital expect China's crude steel output to leap this year to between 700 million and 750 million tons and to 812 million tons in 2015. Steel demand is seen topping 1 billion tons a year by 2016, as the Asian giant rapidly develops urban areas. Steel output at this level would require coking coal availability of at least 500 million tons a year.

"Imports of coking coal and iron ore into China could double by 2020," said CRU Group's Beijing-based chief executive, John Johnson, at a recent industry event.
"And even if China doesn't produce as much as 1 billion tons a year of steel, its coking coal demand will go up as it replaces older works with bigger, more modern blast furnaces whose productivity depends on use of higher-quality coking coal, which also helps to reduce carbon emissions," Sarcinelli said.

China's Ministry of Industry and Information Technology this week announced plans to shut 27.94 million tons of outdated steelmaking capacity in 2011.
Barclays Capital said that it "remains skeptical on China's ability to shut down steelmaking capacity, as capacity has continued to grow an estimated 11% a year between 2005 and 2011." However, China's smaller furnaces have been replaced with large ones that use more coking coal, Barclays' analysts said in a research note.
"The coking coal market's starting to get unbalanced," Sarcinelli said. "Steelmaking is growing faster than coking coal output, particularly in China, India and Brazil, which are countries deficient in coking coal. Supply's not going to match demand."

Fuller economic recovery in the U.S. and Europe will also put pressure on available coking coal supplies, as steelmakers boost output to meet recovering demand, he said.

"The U.S hasn't got much chance of raising its coking coal output," Sarcinelli said. "The three new horizons in coking coal production globally are in Australia's Belvedere region, in Mozambique and in Mongolia."
Mining companies Vale SA (VALE, VALE5.BR) and Rio Tinto PLC (RIO, RIO.LN) are expanding coal operations in Belvedere and in Mozambique.

Mongolia's government last week said it is negotiating accords with groups including the U.S.'s Peabody Energy Corp. (NYSE:BTU) , China's Shenhua International Ltd. (SHU.AU) and a Russian-Mongolian consortium to develop the country's massive Tavan Tolgoi coal deposit, which has estimated coal reserves of 6.4 billion tons, of which 1.8 billion tons are known to be coking coal.
"An important part of future coking coal supply will come from Mongolia," Sarcinelli said.