Come 2020; the world has seen global pandemic amid COVID-19 outbreak, countries locking down the region in order to maintain social distancing and curbing the evil effect of the Coronavirus which has taken more than 16,500 death so far. Impact of this outburst is not only seen in loosing life but also being witnessed in the global downfall of businesses, mining being one of them whose trade, shipment and operations have been affected profoundly in some of the countries. China has always been the top in smelters, refinery and resources consumption, thus making it one of the top resources export destinations for many of the resource-rich countries.
Keeping focus on metallurgical coal or coking coal market, it is worth mentioning that Australia stands top in world metallurgical coal export with 184 million tonnes shipped in 2019, of which maximum portion went to China. China (59%) leads the global coking coal consumption followed by India (10%), Russia (7%), EU28 (6%), Japan (5%) and South Korea (4%) to mention few.
As per the Department of Industry, Science, Energy and Resources the premium hard coking coal (HCC) price for Australia increased to US$150-165 per tonne in the start of 2020 from US$135 per tonne in November 2019 due to disruptions in its supply and flood of COVID-19, resulting in the closure of trade between Mongolia and China (which is explained in the subsequent section). The HCC price is anticipated to fall from US$183 per tonne in 2019 to US$155 per tonne in 2022 due to the lowering demand and the ramp-up of new capacity with price recovering by 2025 to US$167 per tonne.
Let’s now see how the China Coking Coal Import Market have been in 2019 and what lies in the future amid COVID-19.
Chinese Coking Coal Import and Outlook
China is the world's highest metallurgical coal importer and has witnessed a 14% surge in 2019 to 75Mt. This increase was supported by robust growth in steel production. The rise in metallurgical coal consumption was also the outcome of increase in property and infrastructure spending by the government. The outlook for coking coal import in China is anticipated to remain same with some hurdle at start of the year due to the outbreak of Coronavirus before reaching maximum 85Mt by 2025. China’s production of metallurgical coal shall also pace up a bit but still would fall behind to meet the demand due to the fact of limited coal reserves and anticipated reforms shutting down small scale coal mines and halting new approvals.
It is also worth mentioning that with the advent of COVID-19, Mongolia decided to close the border with China in late January till 30 March 2020 disrupting the coal supply to China. The closure of the Mongolian border resulted in a surge of price during February 2020, which is likely to fall in place with the removal of border trade ban. Having said that the outlook of coking coal import is subject to the unfolding impacts of COVID-19, import policy and growing use of scrap steel, i.e. circular economy.
Mongolia Coking Coal Export and Outlook
Mongolia seems to have crossed Russia and Canada to take its 3rd stance as the world's metallurgical coking coal exporter in 2019. The total export in the Country rose to 31Mt, of which the maximum export happened to China via Gants Mod and Ceke border crossings. However, China’s tighter controls on import in late 2019 and outbreak of COVID-19 resulted a fall in export due to the disruption of coal transportation.
With impediments eliminating, Mongolia export is anticipated to grow and reach 44Mt by 2025 due to the upcoming projects such as Tavan Tolgoi and three mtpa expansion is planned at Terracom's Baruun Noyon Uul coking coal mine complex to mention few. Also, the Country is planning to develop ten mtpa coal terminal at Posyet Bay with Russia, which is likely to open market covering both China and the broader Asia-Pacific region.
In the milieu of which, it is also pertinent to mention about the ASX listed metallurgical coal explorer and developer Aspire Mining Limited (ASX: AKM). It has 100% owned Ovoot Early Development Project (OEDP) in Mongolia. OEDP encompasses Ovoot Coking Coal Project and 4Mtpa truck capacity for washing coking coal transport to end market through 560km road construction to Erdenet rail terminal and subsequently via rail to the China and Russia.
Also, it is worth mentioning that the project is likely to benefit community. To know more, please click: Aspire’s OEDP To Benefit Community.
Significance of Aspire Mining and Ovoot Coking Coal Project
Apart from massive support by the renowned entrepreneur Mr Tserenpuntsag who recently secured 52.5% shareholding in the Company, it also has low cash cost for Ovoot project, i.e. US$83 per tonne to US$76 per tonne for coal delivered to the China border.
The project has a life of mine of 12.5 years with an average strip ratio of 4.7. The project is anticipated to start in 2021 with depletion year as 2032. The average yield of the project is 86% at 10% moisture is likely to return EBITDA of US$2.4 billion, with IRR of 49.4% at a payback of ~2.2 years.
With removal of trade ban, the Company is expected to be placed at the right time to gain the benefit of the sudden demand of coking coal post easement of COVID-19 impact where the market will seem to be correcting and rise in infrastructure development anticipated.
The Company is also Cash Backed Bargain benefiting the investors. Interested in knowing the details, Click to Read: AKM - A Cash Backed Bargain.
World Trade in Metallurgical Coal
Department of Industry, Science, Energy and Resources anticipated the world metallurgical coal amid the pandemic effect of COVID-19 as shown below.
The share price closed at A$0.056 on 25 March 2020 and has a market cap of A$28.43 million.
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