May the power be with you
This Christmas you will probably need power to heat up your house, warm your kids and light up the Christmas tree. Most likely the power comes from one of those much-blamed coal-fired power plants. Some might come from nuclear reactors, too, so this is a good time to ask your green-minded neighbor how come he has not disconnected himself from the power grid.
Demand for met coal has been hit hard by the economic downturn. The Australian government cut its 2008/2009 production forecast by 5% to 146.6 million tones. The Chinese steel mills have already cut production by 20% trying to adjust to a tough market.
Queensland, the met coal producing state, seemed to be relatively insulated from any economic worries considering that even if steel mills don’t produce any steel at all, they would still have to keep their coking batteries and blast furnaces hot and going. In other words, they still have to consume coke. The problem is that if the economic downturn is longer and deeper than expected than steel producers would have to shutdown some of their blast furnaces. They cannot afford to keep them warm forever.
The reason for not shutting them down in the first place is because once the furnaces go cold, it could take 6-8 weeks to gradually build up heat as to reach an optimum working temperature. To better understand the idea, check out your local brick oven pizza place and ask the owner how is he managing to keep the oven warm overnight. I’ll tell you how: He’s piling up some wood while providing a reduced air flow enough to allow a slow overnight combustion of the wood.
In Queensland alone, 37,000 workers are directly employed by coal producers. Last week both Xstrata and Macarthur Coal announced that they would lay off a total of 410 employees (contractors included) from their Bowen Basin operations. Rio Tinto’s worldwide operations would also suffer important cuts – Western Australia and Queensland are to be affected too. In Western Australia Rio has already suspended iron ore production for at least two weeks – a temporarily shutdown of their iron ore mines.
These are challenging times and hopefully governments, environmentalists and aboriginals alike would realize that mining has a positive impact on their states and their local economy. If miners suffer, then no mining money would be available to support community programs. So maybe next time that things turn around they would not try again to make miners’ life miserable or mining almost impossible.
India relies on coal to cover most of its energy needs. It was reported that the country sits on top of abundant coal resources but its inability to mine it and process it in an effective manner lead to an increased need for imports. Metallurgical coal imports are set to increase to 85 million tones in 2011 as a result of an increased demand spurred by internal consumption. The cement industry would also expand so India’s coal prospects are good.
India’s National Aluminum Co (NALCO) in combination with United Arabs Emirates governmental RAK Minerals and Metals Investments moved into Indonesia where they plan to build a $1.5 billion 1,250 megawatts power plant close to the coal mines. The energy would be used to supply a proposed $2.5 billion aluminum smelter.
India also found out that it is easier to purchase coal mines abroad than try to open one at home so they are looking into acquiring coal mines in U.S., Mozambique and Australia.
Indonesia has a new mining law and even though many are saying that it provides some clarity for investors to me it looks like it also provides opportunities for unscrupulous authorities to do what they do best - you know what. Plus that miners would be forced to refine, prepare, smelt their products locally which it might be OK for some of the operations but not for all of them – it simply doesn’t fit them all. The country also plans to start revising existing mining contracts – bad timing again.
In U.S., Conoco Phillips and Peabody Energy announced that they plan to construct a new coal to gas facility in Kentucky. The local economy would get a boost of almost $100 million per year and hundreds of permanent jobs.
In other news we have a first. The socialist Sierra Club opposes a Massey Energy strip mine by saying that no mine should be permitted but a windmill should be erected because it would provide more jobs and tax revenue. They got what they’ve asked for because Massey officials said that if the windmill is so good then the opposition should provide the money, buy land, get it permitted and then relax and watch the windmill happily churning air molecules.
Also in the news, a Swiss banker lowered its U.S. coal forecasts - coking coal would sell for $85 per metric tonne in 2009 and $115 per metric tonne in 2010. Nothing against any of the Swiss bankers but one could ask what do they know about the future of coal if you consider that they claimed that they didn’t know the provenience of commodities that used to be transacted right under their noses through their WWII Swiss National Bank – i.e. the fact that Hitler’s SS deposited tones of concentration camps dental gold and stolen jewelry in some Swiss accounts?
“Our report is not an indictment. The Swiss who acted out the transactions described herein had their own motives for what they did. But their actions were often prompted by routine or by the path of the least resistance. They were lacking in imagination and foresight. They did not see the omens of the future written in the war-time heavens. They did not understand what crimes and what tragedies were hidden by their arguments, their calculations, their pettiness, and their self-righteousness.” From the ‘Switzerland and Gold Transactions in Second World War’ report written by the Independent Commission of Experts: Switzerland- Second World War.
Lack of imagination and foresight, huh? And now they’re coming up with coal forecasts. The truth is that you don’t need to be a banker or some stiff necked economist to figure out that all analysts say pretty much the same thing and there is a limited range of prices in their coal forecasts. Or maybe they just read one another.
In China the price of thermal coal is down 50% since October. Also their coal imports for the month of November are down 50%. But signs of a new era are there to be seen too - the steel and cement industries are experiencing a slow recovery and Chinese ports coal stockpiles decreased significantly. The price of coke also increased slightly.
There is something that the Western world is no that familiar with: Under communist regimes many state-run enterprises used to report production figures that were definitely inflated but they were reported anyways just to tickle the Great Leader’s ego. Believe it or not but from China comes another bomb: The Dongsheng coal mines of Inner Mongolia host over 20 billions tones of coal. If true then nobody has to bother any more in exporting thermal coal to China. On the other hand that’s quite a bunch of windmills that Sierra Club has to construct just to make up for that humongous amount of coal.
End of the year means it is awards time and when it comes to safety Illinois Basin thermal coal miner Phoenix Coal walks the red carpet because it just received a bunch of safety awards from MSHA and other local organizations. It is definitely more important to protect the lives, health and well being of your hard working employees than to wonder about Britney Spears mishaps. So I suggest that you put those safety awards on the front pages of your magazines because in any given year a miner would pull out of the ground hundred of tonnes of coal or minerals that would warm up your meal and family or provide for your other needs. At the same time Paris and alike would only try to pull money out of your pocket in enticing you to buy some questionable music and magazines.
Its holidays time so let’s get rid of a wrinkle. Jokes sites on the net report that the smart (!) socialite called a private flight company and after recommending herself asked how long it would take to fly from N.Y. to L.A. The guy said: ‘Just a minute Mrs. Paris’ but she was quick to reply ‘Wow, thanks’ and … she hung up!
Happy Holidays, Merry Christmas, Happy Hanukah or Happy Festivus to all of you. And Happy New Year.
May the Force be with you.
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