Coal’s unpopularity is no barrier for some miners’ growth in Asia

Falling coal demand in the West and in China, the world’s largest consumer of the polluting fuel has not killed enthusiasm for expansion for some coal miners

PUBLISHED : Sunday, 27 December, 2015, 10:30am
UPDATED : Sunday, 27 December, 2015, 10:30am

Falling coal demand in the West and in China, the world’s largest consumer of the pollution-prone fossil fuel, and escalating opposition against coal consumption from environmentalists have not killed the enthusiasm for expansion for some coal miners, Singapore-based Agritrade Resources is one.

The Hong Kong-listed developer of coal mines in Indonesia’s Central Kalimantan province has recently received shareholders’ approval to buy 51 per cent of a new mine there for US$153 million, banking on rising demand for less polluting coal with higher energy content.

“China’s coal consumption has fallen 4.5 per cent this year due to the economic slowdown and switch to cleaner energy, but consumption of higher-grade coal has gone up due to the need to cut carbon emissions,” chief financial officer Ashok Sahoo told the South China Morning Post. “Indonesia’s location gives it four to five US dollars a tonne of shipping cost advantage against coal from Australia.”

Power-station coal with heating value of 6.3 million calories per kilogram at Australia’s Newcastle port – a regional benchmark - traded at around US$52.5 a tonne in November, the lowest in almost nine years and 67 per cent lower than the US$160 peak seen in June 2008.

When the acquisition is complete, Agritrade will be 19 per cent owned by the mine’s seller, a firm 90 per cent owned by mainland businessman Yu Jing.

Agritrade chief executive Ng Xinwei said Yu and his partners are former senior executives of Shandong province-based state-backed Yanzhou Coal Mining, who sought opportunities to develop underground mines in Indonesia after selling their privately-owned mines in China.

“China has been doing underground mining for a long time … but not in Indonesia … due to the lack of technology and skills,” Ng said. “Around six years ago they saw this opportunity to develop the mine, which is ready to start production in next year’s first quarter after all the tunnelling and infrastructure building have been done.”

“It is good to team up with them since they have the skills and technology, while we have the know how to operate mines, market and export coal from Indonesia and obtain financial support in Singapore.”

Agritrade aims to ramp up the new mine’s output to six million tonnes within five years, which will add to its existing output of around four million tonnes from another mine that produces low energy coal targeting mainly markets in South Asia led by India.

The new mine has 92 million tonnes of mineable reserves and its output will mainly be sold to Japan, South Korea, Taiwan and Hong Kong.

The energy value of coal from the new mine is around 68 per cent higher than Agritrade’s current production, but it is around 130 per cent more expensive thanks to its lower carbon emission footprint and greater energy production efficiency.

Spurred by expansion of its manufacturing sector, India is set to overtake China as the world’s largest coal importer this year and coal is expected to fuel up to 60 per cent of electricity generation until the end of the decade, despite India’s aggressive renewable energy targets, according to The International Energy Agency, which represents 29 major oil-consuming nations.

But the highest growth rate in coal usage is forecast to come from Southeast Asia, led by Indonesia, Vietnam, Malaysia and the Philippines, as more coal-fired power plants are expected to come on stream.