The trade in coal and iron ore is big business. Testament to this is the success of mining conglomerates such as Vale, Rio Tinto and BHP Biliton to name a few. On the surface it seems that no other contenders will enter the arena but earlier this year the Adani Group hit the headlines with its latest acquisition. The Indian Group made the largest purchase in its history paying USD1.95 billion for a 99-year concession for Abbot Point Coal Terminal in Queensland, Australia. Such deals will become ‘normal’ in the next couple of years according to a PricewaterhouseCoopers survey. Merger and acquisition deals in the global transportation and logistics industry jumped nearly 14.6% in the second quarter of 2011 over last year. And, according to the survey, despite increased concerns about a potential economic slowdown, factors such as attractiveness of investment and the availability of financing are positive and warrant a gradual recovery in deal levels. But the coal and iron ore markets, like any other markets, are subject to large fluctuations caused by market demand and availability.
India
In the first three months of this year, Indian exporters of iron ore have seen a drop of 20% to 95 million tonnes in exports to China but this has been largely compensated with higher demand from its domestic clients. But the export to China might be a larger problem as imports of iron ore has been continuing to fall with a decline of 16% in 2010 as a result of the tax policies applied by the Indian Government for exports [to China]. Earlier this year, the Government imposed a 20% export tax on iron shipments making many export deals uneconomic. In April of this year, the state of Karnataka had a ban for iron exports (imposed last year) overturned by the Supreme Court. The state has 9 billion tonnes of reserves accounting for nearly 38% of India’s deposits. It now seems that the local authorities in the south-west Indian state have switched their attention to closing individual mines on technical grounds. In Orissa, in the north east of the country, the situation is not much better. The state government has imposed restrictions on 20 major iron ore exporters making it difficult for exports. Again, the government has focused on closing mines and already 50% of the 600 mines have been closed. There is one area which has seen strong growth and that is thermal coal for India’s growing power infrastructure. In 2010, India was the largest importer of Indonesian thermal coal, taking in an estimated 43.4 million tonnes, ahead of China’s 42.9 million tonnes. But more recently coal supply from Indonesia has also become a concern for Indian companies. The Indonesian government has decided to link the price of coal exported from the country with a benchmark based on international prices of coal. “At the holding company level, we will not lose any value because of the transfer pricing mechanism,” said A Subba Rao, Chief Financial Officer at India-based GMR Infrastructure, operating coal mines in both Indonesia and South Africa.
Australia
In Australia, Rio Tinto is accelerating its iron ore expansion programme in the Pilbara region of Western Australia with USD676 million of funding for early works and procurement as part of a five-year programme started in 2010. As a result, capacity expansion to 333 million tonnes a year (Mt/a) will now be reached in the first half of 2015, six months earlier than planned. The investment will be used to bring forward engineering work for the longest lead-time components of port and rail infrastructure, without increasing the overall cost of the expansion programme. The port works include the assembly of additional construction accommodation, the continuation of dredging, marine works and stockyard works and the procurement of key equipment. The rail-related funding will enable early engineering and accelerated procurement of long-lead items such as rail plant. At Gladstone, QR National’s wholly owned subsidiary QR Network Pty Ltd reached a commercial agreement with Xstrata Coal to proceed with the construction of Stage One of the Wiggins Island Rail Project.
Construction is due to begin in early 2012, with first railings scheduled for mid-2014 and aligned with port capacity. All remaining works are due for completion by March 2015. The project supports the initial 27 million tonnes per annum of coal to the proposed Wiggins Island Coal Export Terminal at the port.
Market
So, with these large investments made in infrastructure, the need to ship coal and iron ore quickly and efficient is essential for making ‘big bucks’ in this market sector.”Nations with large populations and rising middle classes will continue to demand commodities,” said Chief Executive Officer Murilo Ferreira at Vale SA, the world´s largest iron-ore producer. In an interview Ferreira said he also expected prices for steelmaking material to remain “strong” because of demand in emerging countries such as China and India. “If we continue this trend, we will have the third consecutive quarter without altering prices,” says Ferreira. In a statement issued at the end of July, Vale said that prices for iron-ore averaged USD145.30 per metric tonnes during the second-quarter, an increase of 58% over the same period last year.