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China’s pollution epidemic has finally spurred the country’s leadership to declare a war on smog. It’s about time. Chinese citizens are angry about what’s going into their lungs, while a recent government report says pollution has left 16 per cent of the country’s land unfit for use.
Much of that pollution can be traced back to the billowing smoke stacks attached to China’s fleet of coal-fired power plants. If Beijing is indeed sincere about taking the fight to pollution, then these ageing plants will be on the front line. Global coal producers are already sitting up and taking notice.
China relies on coal for roughly three-quarters of its power generation. Its coal-fired power plants combust nearly as much coal as the rest of the world put together. Coal prices, for their part, are already tumbling in part due to a slowdown in China’s economic growth. Spot prices at Newcastle, Australia, the world’s largest thermal coal exporting terminal, have plunged from a monthly average high of $142 a tonne in January 2011 to $78 a tonne last month.
A glut of coal is translating into falling coal prices and serious losses for global coal producers. According to an estimate from Goldman Sachs the cost of producing thermal coal is now 15-per-cent higher than what mining companies are getting when they sell it. Something clearly has to give – and it is. High-cost mines, be they for the thermal coal used in power generation or the metallurgical used to make steel, are shutting down around the world.
In Australia, mining giant Glencore Xstrata is closing its Ravensworth mine, while BHP recently shuttered its Gregory and Norwich Park mines. In Canada, Walter Energy is closing its Wolverine mine near Tumbler Ridge, B.C. Teck Resources, meanwhile, is halting plans to revive its nearby Quintette coal mine.
China’s slowing economy is also emerging as an ever-bigger concern for coal producers. The days of China regularly notching double-digit economic growth are gone. The latest quarterly numbers show the country’s GDP growth is at its tamest level in years. A slower economy, of course, means less power demand and falling coal consumption.
That’s bad news for coal producers that were counting on China’s coal-hungry economy to continue growing at gangbuster rates. Added to which, they now have to grapple with Premier Li Keqiang’s pending war on pollution, which is already threatening to close down some of the more offensive coal-fired power stations.
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