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August 24th, 2016 ~ Vol. 85 No. 33
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When it comes to Steelmaking, All is Not a Lump of Coal.
Rick's Corner
JOHN PUNDYK
Feature Writer
At least once a week, someone asks me about our local economy. When they hear we mine steelmaking coal, there is the inevitable pause which is usually followed with a second question. Isn’t the government shutting down coal mining?

In Crowsnest Pass, we take much of our knowledge about the difference between coking coal and thermal coal for granted, but it is naïve to suspect the rest of the public, or even many government officials, are so well- informed.

What most people know about coal is what is reported in the news, and the news about coal has not been very good lately, especially in Alberta. As part of a climate change strategy, our government is pledging to do away with power plants which generate power using steam produced by burning coal. This system uses thermal coal.

Thermal coal is an abundant mineral and is found all around the world and it is still one of the most economical methods of generating electricity in many parts of the globe.

Even in Germany, which is one of the world leaders in renewable energy development, they still use brown coal to generate a significant portion of their electricity.

I don’t think there is much argument that, if it can be done affordably, producing electricity without burning coal is better. But all this talk about “end of coal” or “war on coal” has very little to do with the type of coal mined in our area.

High quality metallurgical coal is not as abundant as thermal coal. This type of bituminous coal, which is mined in the Elk Valley, is highly prized by steel makers in Japan and South Korea for its unique coking characteristics.
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Metallurgical coal is a necessary ingredient in the making of steel. So, while we hear about “end of coal,” on the nightly news, we don’t hear about “end of steel.”

According to those who keep statistics, annual use of steel quantities are “8 to 9 times greater than all other metals combined.” Just for a second, try to imagine a world without steel. That would be a world without bridges, modern hospitals or even clean drinking water. The list can go on forever.

In 2015, the world produced about 1.6 billion tonnes of crude steel. The World Steel Association states, it takes “1,400 kg of iron ore, 800 kg of coal, 300 kg of limestone and 120 kg of recycled steel to produce 1,000 kg of crude steel.”

Steel is also a very environmentally sustainable material. In a world of growing population and an ever greater need for additional products, most of the steel we use is recycled into new products. For example, in 2007 the global recycling rates stood at 83%, and the numbers are improving.

The steelmaking coal mining business is a cyclical business - when the price is high, everyone piles in, trying their hand at it. Many fail.

Such was the case in 2011 when the spot market for met coal reached US$300 per tonne. There was a mad dash to develop new capacity all around the world, with Australia leading the way. Australia is by far the biggest producer of export metallurgical coal.

In 2015, Australia shipped 185 million tonnes of metallurgical coal. Canada exported about 27 million tonnes in that same year.
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In 2011, when this coal was in short supply due to flooding in Australia, the largest Australian Mining Company, BHP, approached the Japanese and Korean steel producers to change the method of pricing coal from yearly contracts to monthly pricing based on the spot market.

Steel producers, like Nippon Steel Corp, were not too happy to make the changes because many of the large steel contracts needed the price stability which yearly coal contracts provided. In the end, a compromise emerged where the price of met coal would be negotiated on a quarterly basis.

In 2015, Australia accounted for 66% of the export market of steel-making coal. Industry experts say this number is likely to rise. If you were a steel producer, you would need to worry about this concentration of production in one area.

What if there was a repeat of the 2011 flooding, or an even greater concentration of mine ownership than already exists?

These kinds of worries, which keep steelmakers up at night, bodes well for the future of Canadian steelmaking coal, and this future is starting to brighten.

At the beginning of 2016, met coal was trading at about US$75 per tonne. According to reports on August 19, “a shipment of premium Canadian material sold into China at around $120-121 per tonne.”

Teck is the second largest global producer of seaborne steel making coal. While BHP is the cost leader, Teck is keeping up and competing in a brutal cost cutting environment.

There is a great future and opportunity for Canadian steelmaking coal as the recent price rout is turning into a slow commodity rally.

If it continues, Crowsnest Pass and the Elk Valley should soon benefit from the tremendous effort and industriousness that has made this area strong for well over a hundred years.
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August 24th ~ Vol. 85 No. 33
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