China and Australia: how might the coal industry’s change affect steel?

There seems to be an impending problem in the energy sector that is used by a lot of industries. Executives from the mining and political leaders were quick enough to bring down some reports that suggested that Australian cola was being dumped into China, the quality of which isn’t great. The National Development and Reform Commission’s proposal to impose several restrictions on the ash and sulphur industry was unclear and would not apply to what Australia supplies to China.

''Australia is very fortunate to have some of the highest quality coal in the world,'' said Greg Evans, of the Minerals Council of Australia. ''In the longer term, I think the value of Australian coal compared to some of our competitors will actually see Australian coal reap a premium,'' said federal Industry Minister Ian Macfarlane.

But the coal premium with respect to Australia would not matter in a rapidly sinking market.

China consumes about 3.5 billion tones of coal annually almost the same quantity the rest of the world would consume. The price however rose up because of the excessive demand in China that beat the world in global coal supply.

Considering the period from 2001 to 2011, the demand supply gap was huge. The amount of coal that China burned to produce electricity, was growing at a annual compound rate of more than 11%; total coal production grew at 13% since China has been eating up the steel and cement supply rapidly.

Coal required for generation of power not only doubled but also quadrupled and then China became the largest importer from being the largest exporter. This impacted the price of metallurgical steel that rose even faster.

China’s credit-driven investment and its construction model has reached the end of its sustainable life. Hence, the overall GDP has almost halved from the time exactly of the post-global financial crisis peak

For materials like coal, this slowdown has been accentuated by political demands to lessen most dangerous environmental catastrophes. It is believed that China’s toxic skies are a way that nature wants to impose a warning against the model of development that is not efficient and is not open.

 ''We will declare war on pollution and fight it with the same determination we battled poverty.''

In recent years, however, China’s industrial output has slowed down even more rapidly than the growth in GDP. There is a bad news here for Australian coal producers in the sense that the slowdown in the coal-intensive heavy industry is even more pronounced.

Australians might view this as a threat to the coal industry that contributes greatly to steel.