Coal prices to remain high: Rio Tinto
Alex Wilson | Dow Jones Newswires |June 21, 2010 2:59PM
RIO Tinto says it expects metallurgical coal prices to remain high, driven by strong global demand.
The Anglo-Australian mining giant expects demand to grow at about 3 per cent a year out to 2020.
In a presentation to analysts, Rio Tinto Coal Australia managing director Bill Champion also gave a bullish view of markets for thermal coal, used for power generation, which he said would be driven by demand from the rapidly growing economies of China and India.
Mr Champion said urbanisation and industrialisation in developing countries was driving up steel consumption and current sources of metallurgical coal, used in the steelmaking process, were unlikely to be able to keep pace.
“Prices are likely to remain high relative to historical levels given the lack of substitutes and rapid demand growth,” he said in a presentation slide.
Rio Tinto expects hard coking coal demand to grow at an average rate of about 3 per cent a year out to 2020 with demand from Brazil, India and China expected to grow by about 8 per cent a year over the same period.
Metallurgical coal has in the past been priced in annual negotiations but that system is now breaking down, and Mr Champion said the majority of recent shipments from Australia to Asia had been based on a new quarterly prices.
Chinese and Indian consumption was also expected to drive increased demand for seaborne thermal coal which, despite the emergence of energy substitutes, would continue to provide the bulk of power generation for developing economies, he said.
While the percentage of China’s power generation that is based on thermal coal is forecast to ease to 75 per cent by 2030 from 81 per cent in 2007, Mr Champion said the huge increase in total power consumption in China meant this would see China’s coal fired power generation surge to 6639 terawatt hours from 2685 in 2007.
China meets the bulk of its thermal coal demand from domestic production, but Mr Champion said that as urbanisation boosted consumption, China’s existing mines and infrastructure would be under pressure, boosting demand for imported coal.
In India, thermal coal is expected to account for 71 per cent of power generated in 2030 and contribute 1,935 terawatts up from 537 terawatts in 2007.
“India’s thermal coal imports will likely double over the next five years to meet power generation demand,” Mr Champion said.
Rio Tinto’s Australian coal assets were well placed to benefit from these trends, he said, and the easing of current infrastructure bottlenecks would allow mines to run at installed capacity.
The company has clearly defined growth plans beyond current installed capacity.
But Mr Champion said this growth potential has been put at risk by the Rudd government’s planned new mining tax and all projects have now been put under review.