Leading the charge

A significant portion of the world depends on coal for power generation and energy requirements. Coal mining is therefore a global industry that continues to grow. The Asia-Pacific region is the world’s largest in terms of coal reserves, production and consumption, followed by Europe and North America. In 2011, Asia-Pacific’s coal production reached an estimated 4.87 billion t, or around 65% of total global coal production.

The coal industry in the Asia-Pacific region comprises China, India, Australia, Indonesia, Kazakhstan, Thailand, Vietnam and New Zealand. China contributed around 68% of total regional coal production, which makes it the largest coal producing country not only in the Asia-Pacific region but also globally, followed by India with 13%, Australia with 8.5% and Indonesia with 7.2%.

The major mining companies of the Asia-Pacific region include:

  • China Shenhua Energy Co. Ltd.
  • China Coal Energy Co. Ltd.
  • PT Bumi Resources Tbk.
  • Xstrata Coal Pty Ltd.
  • Mitsubishi Development Pty Ltd.
  • Yanzhou Coal Mining Co. Ltd.
  • PT Adaro Energy Tbk.
  • Coal India Ltd.
  • BHP Billiton Ltd.
  • Rio Tinto Coal Australia.

During the 2012 – 2020 forecast period, the region’s coal production is expected to grow at a compound annual growth rate (CAGR) of 4.1%, to reach around 7 billion tpa by 2020.

Market drivers

The continuous demand for coal for electricity generation in China, India and Australia is driving the Asia-Pacific market.

With growing production, the consumption of coal in the region has increased substantially at an average annual growth rate (AAGR) of 31.8% from 2000 – 2011. The strong growth in coal consumption in the Asia-Pacific is attributed to the demand for coal for electricity generation in China, India and Australia. Consumption is expected to continue to increase at a CAGR of around 5.2% to reach approximately 7.2 billion t during the 2012 – 2020 forecast period.

The Asia-Pacific region had around 292.6 billion t of coal reserves, or around 34.8% of global coal reserves, at the end of 2011. China had the largest coal reserves in the region, with around 13.3% of total global reserves. Australia, India and Kazakhstan together accounted for around 19.9% of total global coal reserves at the end of 2011. With the abundance of coal deposits scattered across many countries in the region, the production of coal is set to rise, with many planned and exploration projects in China, India and Australia during the forecast period.

Regional market share

China is the largest contributor to the Asia-Pacific region’s coal mining industry in terms of production, consumption and reserves. The country had 114.5 billion t, or 13.3% of global proven reserves, at the end of 2011, according to the BP Statistical Review of World Energy 2012. Reserves are expected to last for more than 35 years at current levels of production. Most of the large coal deposits currently exploited are found in the Chinese provinces of Inner Mongolia, Shanxi, Shandong, Xinjiang, Qinghai, Gansu and Ningxia. The Xinjiang autonomous region is estimated to hold coal resources and reserves of over 2 trillion t and is poised to acquire prominence as the country continues to close smaller coal mines in central China. According to Zhu Zian, deputy director of the Xinjiang Development  and Reform Commission (XJDRC), the province holds 40% of China’s coal but the reserves are underdeveloped due to transportation and transmission bottlenecks. To overcome this obstacle, there are imminent plans to put in place a rail link connecting Beijing with Urumqi, the region’s capital.

In 2011 China produced an estimated 3.3 billion t of coal – over 45% of the world’s coal production and 68% of the Asia-Pacific region’s. The major coal-producing areas can be divided into four regions:

  • Northeast: the Sanjuang-Mulinghe, Songliao, Donhua-Fushun and Hongyang-Hunjiang basins.
  • Northern: the Taixing-Shandou, Qinshui, Daning, Ordos, Hedong, Yuxi, Xuhuai and Huainan basins.
  • Northwest: the Tarim, Qaidam and Junggar basins.
  • Southern: the Chuannon-Qianbei, Huayingshan-Yongrong and Liapanshui basins.

Rising production

China’s coal production is expected to grow at a CAGR of 3.5% from 2012, to reach 4.5 billion tpa by 2020. The increase is attributed to the Chinese Government’s commitment to consolidating the coal mining industry by forming large production bases. This effort aims to increase production capacity to 90% by the end of the 12th Five-Year Plan (2011 – 2015). The Government is also supporting ongoing exploration in Xinjiang.

In addition to these factors, low labour costs are also driving coal production in China. Compared with other major coal-producing countries, coal production costs are low in China, primarily due to cheap labour. According to the International Labor Organization (ILO), labour only accounts for 20% of total production costs for Chinese coal mines, whereas in other countries, labour sometimes constitutes as much as 60% of production costs.

With growing production, coal consumption is also increasing at a significant rate. In 2011, China consumed 3.52 billion t of coal. Of the total coal consumed in 2011, more than 55% was used in thermal power plants. Another major factor driving coal consumption in China is the demand for power generation, which accounted for 55% of total consumption in the country, while the rest was consumed by industrial and other sectors. The increase in domestic coal consumption is driven by huge demand from existing and upcoming coal-fired power plants. The country’s coal consumption is expected to increase at a CAGR of around 4.6% during the outlook period, to reach 5.2 billion tpa by 2020.

Consumption and imports

Despite a continued increase in coal production, the country is a net coal importer due to increasing consumption. China has become a major importer of coal since 2009, when coal production decreased substantially owing to the Chinese Government’s domestic coal mining consolidation programme, designed with the objective of shutting down small and dangerous mines. However, in the long term, these small production losses due to the closure of the small mines will lead to the efficiency gains of bigger, more integrated mining companies. China imports the majority of its coal from Australia, Indonesia, Vietnam and Russia, which together accounted for total coal imports in 2010. In 2011, Chinese coal imports stood at 182.4 million t and are expected to increase at a CAGR of 15.4% during 2012 – 2020 to reach 714.3 million t.

China also exports moderate quantities of coal to its neighbouring countries, such as South Korea, Japan and Taiwan. Coal exports from China have declined in recent years due to  the increase in demand from the  power sector. Figures from the World Steel Association in 2012 indicate that China was the leading producer of steel in 2010 and 2011, with production of 637.4 million t and 683.9 million t, respectively. This becomes relevant because around 68% of global steel production relies on coal for energy. It is inevitable that coal will play a major role in securing China’s energy needs in the future. The country’s coal exports stood at 49.3 million tpa in 2011 and are expected to decrease at a CAGR of around -10% to reach 20 million tpa during the 2012 – 2020 forecast period.

Safety and legal concerns

Despite continuous growth, mining is China’s deadliest industry and holds the worst safety records. Accidents in the coal mining industry are a major concern in China, endangering the lives and property of mine workers. It also poses severe challenges in terms of corruption, illegal trading and loss in Government revenue. In 2010, 2433 people died in coal mine accidents, equivalent to more than six workers per day. China’s coal mines have poor safety records and labour rights groups estimate the actual death toll to be much higher, as these figures are under-reported by mine authorities to limit their economic losses and avoid punishments.

Most accidents occur in small town and village mines, often illegally operated, where mining techniques are labour-intensive, using very basic equipment. The Government and the State Administration of Work Safety (SAWS) are making efforts to improve safety standards in mines by imposing heavy fines on illegal mining and implementing region-wide mining shutdowns. With the Government’s efforts the number of deaths decreased by 19% between 2010 and 2011.

Illegal coal mining in China is another major concern. There are many mines that are not legally registered, which underlines the broader challenge of regulating the mining industry in China. There are still over 5000 coal mines operating in violation of the country’s coal mining laws and more than 1500 litigations involving illegal trading and 4383 cases of illegal mining in the country. More than 900 Government officials in the northern Shanxi province were recently punished during an anti-corruption campaign involving the coal mining sector.

These illegal coal mines often avoid regulatory inspections, leading to great difficulty in rectification. The existence of illegal coal mines in large numbers destroys the mechanism of coal pricing, since many of the variables that go into determining the price, such as production, transportation and environmental costs, the value of reserves and coal mine exit costs, are not recorded and go unaccounted for.

However, noteworthy progress has been made in the clearing-out of illegal mining, with the Government promising to improve safety. The Government has suspended new and existing mining licenses for the coal and rare earths sectors to prevent over-mining. Moreover, the Institute of Geological Environmental Monitoring (CIGEM) plans to build 10 geological environment monitoring demonstration zones at national level in the north, northeast, northwest and Yangtze river regions by the end of the 12th Five-Year Plan.

Future outlook

China’s mining industry is the largest contributor not only to the Asia-Pacific mining market but also to the global market. With the largest coal reserves in Asia-Pacific, the country is the largest producer of coal in the world. Factors such as Government programmes and continuous ongoing explorations are driving production, as it is continuously increasing coal consumption with high demand from the power sector and steel industry. Despite the drop in production levels due to the Government’s consolidation measures to shut down inefficient small mines, small losses due to closure of such mines will pave the way for competence of bigger mining companies, thus improving efficiency and increasing productivity across the mining industry. Illegal mining and poor safety records remain major areas of concern, thus restraining the market.

Nevertheless, with growing energy requirements to meet the economic needs, and the Government’s efforts to negate the impact of such issues, the Chinese coal mining industry is anticipating a promising future.

Note

GBI Research is a market-leading provider of business intelligence reports, based in the UK.

For more on the Chinese coal industry, see the regional report on China in the October issue of World Coal

Written by Ankita Sinha, GBI Research.

Published on 03/10/2012

 
 

Write your own comments

*
*
*

Recommend magazines

  World Coal