Cash-strapped North Korea steps up mining output – by Anna Fifield (Washington Post – February 27, 2015)

http://www.washingtonpost.com/

SEOUL — The sharp fall in global commodity prices is starting to have an impact on North Korea, economists say, hurting a state that relies heavily on exports of minerals to keep its economy afloat — and its gargantuan military funded.

Combined with China’s economy coming off the boil, the recent slump in coal prices in particular could hurt Kim Jong Un’s “byungjin” policy: his stated desire to simultaneously develop North Korea’s economy and its nuclear weapons program.

“Commodity prices are dropping, so it’s becoming more and more difficult for North Korea to earn foreign currency,” said Choi Kyung-soo, president of the North Korea Resources Institute in Seoul. “I think last year, minerals trade decreased by about 10 percent by volume and about 15 percent by price.”

Mining makes up roughly 14 percent of the North Korean economy, which, although in a parlous state and under heavy financial sanctions, appears to have been growing modestly in recent years, when China still was booming and commodity prices still were surging.

“North Korea is heavily reliant on commodities such as anthracite and iron ore for its export revenues, and just as it rode the resource boom to its apex in 2011, it is now the victim of a steady and steep decline in world prices,” said Kevin Stahler of the Peterson Institute for International Economics.

The overwhelming majority of North Korea’s trade is with China — which remains its closest ally and economic patron, despite the political chill that has descended in the past three years since Kim Jong Un took over in Pyongyang. And more than 70 percent of its exports to China are mining products, according to the Seoul-based Korea International Trade Association.

The prices that North Korea can get from China for anthracite coal and iron ore, its main mineral exports, fell by 26 percent and 35 percent, respectively, between their peak in 2011 and last year, Stahler said in a recent note on the institute’s NK Witness blog.

Furthermore, Beijing is trying to reduce China’s dependence on coal, and North Korea’s coal reportedly does not meet the new sulfur standards introduced to try to tackle China’s air pollution problems.

All this is bad news for Kim, who has made industry a priority. In his New Year’s address, he said that improvements in a range of sectors, including coal mining, were “opening up bright prospects for the building of an economic giant and improvement of the people’s living standards.”

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