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Australian Comparisons with Chinese
Export Coal Sector
Presented by
Gary CochraneManaging Director
Resource Management International Pty Ltd
Director
Millennium Coal Pty Ltd, Bounty Industries Ltd
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Chinese Coal Industry 2007
• Very large industry producing over 2.4 billion tonnes of coal per annum;
• Main producing areas are Shanxi, Shaanxi, Inner
Mongolia, Beijing, Shandong Provinces;• Almost 95% of coal production is by underground
mining methods, government requires 70% recovery;
• All types of coal mined including lignite, bituminouscoal, anthracite, coking coal;
• Exports at 58 million tonnes in 2007;• Imports were 57 million tonnes;
• Coal can be trucked, railed and shipped very largedistances from Central China to Southern China.
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Significant Production Growth in China
over the last 10 yearsYear Total Production
(Mt)
Imports (Mt) Exports (Mt)
2000 950 3 40
2003 1,600 13 96
2007 2,600 57 58
2010 3,000 65 30
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Chinese Industry Demand 2006
• Total - 2,200 Mt
• Power – 1,165 Mt
• Construction – 368 Mt
• Steel – 350 Mt
•
Chemical –
134 Mt• Others 192 Mt
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Australian Production Growth
Year Total Production
(Mt)
Imports (Mt) Exports (Mt)
2000 320 0 187
2003 350 0 215
2007 395 0 250
2010 440 0 290
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Export Coal Structural Issues
• Proximity to the coast:
– China has rail haulage up to 1,000 km and
increasing;
–
Australia has rail haulage up to 280 km.• Major types of mines:
– China has up to 95% underground mines;
– Australia has approx 50% underground
• Resource Depletion:
– Chinese u/g mines on the coast up to 800 m deep
– Australian mines max depth of 450 m
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Operating Cost Issues
• Chinese mining wages increasing by at least
15% per annum, Australia at around 5%;
• Chinese inflation running at over 7%,Australia at 4%;
• Deeper mines in China with high gas and
spontaneous combustion;
• Chinese export tax reimbursement decreasing
from 13% to 0% over the last 4 years;
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Coal Quality Issues
• Thermal coal quality changing to lignites in
Inner Mongolia for many new mines (with
mine mouth power stations);• Coking coal quality very poor and limited to
two areas including Shanxi and Heilongjiang
Provinces (long rail distances);
• Significant investment in mine mouth coal to
liquids (oil and methanol) with strong demand
increasing to over 200 mtpa.
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Geographic Issues
• Increasing demand in Southern China with limitations
on supply from Central China where major coalfields
are located;
• Reduced competitiveness with Australians and
Indonesians to Southern China;
• Increased concern over sovereign risk with
Government banning all exports for the next two
months.
• Currently importing over 20 mtpa from Vietnam who
will soon move to be a net importer.
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Chinese Industry Rationalisation
• State Owned Enterprises consolidating and also listing subsidiaries
on the Chinese and international stock markets, Shenhua (2nd
largest coal company in the world behind Peabody), Datong,
China Coal, Yanzhou;• Govt closing 40,000 -50,000 small and illegal mines;
• Power utility split into 5 large groups all wishing to acquire coal
mines in China;
• Large conglomerates wishing to invest overseas like Yanzhou
(Austra mine in Australia), Huadian (Millmerran)• Entrepeneures developing small projects in Inner Mongolia;
• Still have very high mortality rate although 20% reduction in 2006
to just over 4,000 workers
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Chinese Industry Rationalisation
• Chinese companies now considering larger acquisitions
inAustralia;
• Rapid energy demand and closure of small mines
leading to severe shortfalls, recently compounded by
snowfalls – govt has banned coal exports until mid
March
• Government starting to limit foreign investment in key
commodities, some minor limitations on coal at present
• Shortage of senior management leading to spiralling
wages for executives now comparable to Australia;
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