As 2014 draws to a close, it is often prudent to take stock of the year just gone; to reflect on those moments that made us pause; that made us think.
Without further ado, therefore, World Coal presents the biggest news stories from the global coal industry that made headlines over the course of 2014.
A testing year
Oh how the best laid plans of mice and men oft’ go awry! Those heady days of the coal industry boom years are fading from memory like a shadow in the light. 2014 began with coal mining companies releasing financial results for 2013: and these worrying bottom lines highlighted the continuing struggle against low coal prices, which have persisted throughout 2014. Indeed, the release of these results marked the start of yet another testing year for the coal industry, perhaps epitomised by Rio Tinto’s sale of its Mozambique coal assets for just US$50 million. The sale drew the line under what has been a disastrous adventure for the mining giant, which originally bought the assets from Riverside Mining Ltd for US$3.7 billion in 2011. Times have indeed been tough across the board for coal industry players, but in the US especially, the gruelling battle between coal and the US Environmental Protection Agency (EPA) has taken its toll. In June, the EPA announced proposals to cut emissions from power plants by 30% from 2005 levels by 2030. The EPA’s own estimates suggest this will see coal’s share of the US energy mix drop from around 40% to 30% in 2030. Such estimates do not paint a pretty picture for the US coal industry, or for those who work in it: employment in the coal industry has fallen to its lowest level since 1Q09.
Is China’s love affair with coal now over?
It has long been the case that many coal industry players would concede that, yes, times may be tough: but there will always be China. The thought being that no matter what happens elsewhere in the world, the Asian behemoth will continue to require coal to meet its seemingly insatiable demand for energy. China could, therefore, be relied upon to support the coal industry through the inevitable dips of the natural boom and bust cycle of capitalism. However, as Bob Dylan once sang: the times; they are a changing. This is certainly true of China, where government policy over the second half of 2014 signalled a step change in direction and attitude toward coal. In September, the country announced it would ban the import and local sale of coal with high ash and sulfur content, in a bid to tackle air pollution and support the domestic Chinese coal sector. Just over one month later, China signed what has been hailed as a historic climate agreement with the US. As part of the deal, China committed to peak its CO2 emissions by 2030 – the first time the country has put a date on this – and also promised to increase the share of electricity generation by non-fossil sources to 20%. Meanwhile, the recently announced new five-year plan has also seen the country rule out any additional coal-to-natural gas projects. The obvious intent behind these policies is to mark China as one of the numerous developing countries to back (moderate) attempts to curtail the effects of man-made climate change. The question on the minds of all in the coal industry will no doubt be whether the policies mark the beginning of the end of China’s love affair with coal.
2014 saw the world’s largest democratic election take place in India, where some 814.5 million people are eligible to vote. The result of this year’s election was something of a political earthquake, as the Bharatiya Janata Party (BJP) trounced the ruling Indian National Congress. The BJP, led by Narendra Modi, swept to victory on the promise of strong government and economic reform. Yet there is much to do. Despite boasting some of the largest coal reserves in the world, India suffers from a chronic shortage of coal and power, and the country’s coal industry has been engulfed in corruption scandals for much of living memory. Coal industry reform is essential if India’s economy is to pick itself up and get back on track.
The year also saw another key election in Indonesia, where Joko Widodo was sworn in following a campaign built on promises of high-profile infrastructure projects. As with India, Indonesia’s coal industry is in dire need of reform. Widodo was the preferable choice of candidate for foreign investors in Indoesia, yet his victory in the polls may prove hollow unless he is able to sort out the country’s coal sector.
Hope for the future?
After two and a half years of decline, the mining equipment market saw a slight increase in 3Q14, with unit deliveries more than 12% higher than in the previous quarter. The extent to which these patterns continue or are reversed as the market recovers is an open issue, yet it is certainly one sign that we may be at the tail-end of these dark and testing times. Another cause for hope is the recent flurry of investment by Japanese trading firms in high-quality coal assets. This investment suggests that the coal market may finally have reached a turning point. For an industry in desperate need of Christmas cheer, this news will be very welcome indeed.
Written by Sam Dodson