Confusion on Coal

By Felicity Landon

To take an overview of the global mining sector is to find numerous stories: of high demand for coal but green pressures and investor reluctance; of high demand for copper required for low-carbon technology but investor uncertainty; of projects delayed by Covid-19 and now gathering pace; and of a new phenomenon of renewable energy projects being built on the site of former mines.

Last year saw investments in mining soaring, and the expectation is of more to come. That means increasing demand for the movement of mining infrastructure components, vehicles, power generators, pumps, dumpers and giant tires, to name a few.

According to the Global Energy Monitor’s Global Coal Mine Tracker, new coal mine proposals in January 2022 equated to 1.94 billion tonnes annual production capacity, with China, Australia, India and Russia dominating that volume.

The largest new coal mine projects include Siarmal in India, with annual production capacity 48 million tonnes per year; the Galilee and Carmichael projects in Australia; and the VostokCoal-Diskon project in Russia. Expansions and upgrades include Alpha North in Australia (30 million tonnes), and China’s Shengli East (stage two, 20 million tonnes and stage three, 30 million tonnes).

The world’s state-owned enterprises, with majority government interest, remain the major sources of new coal mine projects and expansions – especially in China and India, said Ryan Driskell Tate, Global Energy Monitor researcher.

For private and investor-led projects, Australia and Russia head the table – but in Australia, many mining projects are struggling to secure financial close. “In 2021, Australia shelved 103 million tonnes of proposed mining capacity and downsized ongoing projects by 37 million tonnes. Meanwhile Russia’s newest projects, primarily intended for export to Asia, are now in a shambles because of the war in Ukraine,” he said.

Without a doubt, says Driskell Tate, investments in new mines are at odds with Paris climate targets for 1.5 degrees, which require a phase-down in coal production of 11 percent each year. “It’s also at odds with the International Energy Agency’s Net Zero 2050 roadmap, which requires no new mines or mine expansions,” he added.

It is difficult to find investors willing to put their name behind mining projects, said Driskell Tate, although this can be circumvented because mining companies can raise finance without specifying particular projects.

“In Australia, so many mines have been shelved and cancelled – they have done the exploration, assessed the resources and lined up potential operators and the project just can’t get into production because they can’t get the finances.”

There is often a huge political incentive for politicians in Australia, the U.S. and elsewhere to support the coal industry, he noted, “but at the same time they are up against a market not necessarily telling the same story. In the U.S. we have had so many coal companies go bankrupt in the past five years – it has been quite astounding.”

Physical access to a new mine development is also a challenge. For example, in Australia there are a half-dozen other projects in the same region as the proposed Carmichael development, all on hold because they are dependent on being able to use the railroad access to Carmichael. “These projects are all backlogged, hoping for the railroad to be built – or they can’t get the coal out.”


Approvals Complications

Marc Willim, general manager for AAL Shipping, agreed that environmental concerns are growing. “Everything is getting more complicated to get approval for transport,” he said. “Some of the coal mines in Australia are very close to the Barrier Reef and that has caused some impact on how much traffic is allowed for exports. On the one side it is getting more difficult to build or expand coal mines, and on the other side they don’t really have the finance to do so.”

This would also apply to any plans to build new coal-fired power plants, he added: “There would be massive issues getting financing.”

Because of its trading pattern, AAL’s main involvement in mining is limited to Australia. “We have regular services and carry large pieces – some for mining and some for mining-related port infrastructure,” Willim said.

“We recently carried some big ship loaders from Asia to Australia – fully erected, weighing a few hundred tonnes, a substantial deck cargo. We also carry conveyor belts, either to load mining products in port or for mining activity. We are also engaged in bringing spare parts, mining trucks, big tires and all kinds of mining equipment.”

Last year was a very strong one in the global market for high and heavy machinery – and demand for mining machinery was no different, said Robert Berg, market intelligence and finance manager at Wallenius Wilhelmsen.

“Global exports of mining machines shot up approximately 50 percent from the Covid-induced trough in 2020 and, with the exception of the coal-driven strength leading up to the last peak in 2018, one would have to go all the way back to 2014 to find similar volumes,” he said.

“With our significant market presence in transporting this type of equipment, we also benefited from this strong momentum. We experienced strong volume growth in all our major trade lanes, with rebounding demand across Europe, North America and Oceania. We also saw significantly increasing appetite for machinery in South America. Similarly, growth was geographically broad in terms of export regions.”


Strength Expected to Continue

Berg said that in the near term, he expected demand to remain strong. “Due to the supply strain caused by the pandemic, our customers are reporting solid order backlogs, which would help carry demand in the time ahead. At the moment, it’s all about meeting the strong demand out there for both us and our customers.”

WW does not expect any material shifts in terms of the type of mining machinery cargo it carries in the near term, Berg said. “There will always be a demand for parts and components for servicing and maintenance, and we certainly welcome what we are seeing in terms of miners wanting to replace what has now become an aging fleet. We believe there is more runway in this replacement cycle,” he said.

While some commodity prices were already at decade-high levels, the conflict in Europe continues to push prices upwards, which may result in even further increased capex activity, Berg predicted. “There has been an increase in activity in commodity sectors such as the gold segment. On behalf of AAW Projects (Metso Outotec), WW Group recently supported the carriage of a ball mill plant from Italy into Queensland for a gold mine expansion project.”

As well as plant and processing equipment, WW is seeing an increase in mining consumables being shipped via roll-on, roll-off rather than the traditional container mode – for example, conveyor belting and plant equipment parts such as slew rings and drum hoists, Berg said.

Overall, sourcing points of mineral processing equipment is ever-changing and this sometimes brings in more complexity, moving away from established supply chains, he noted. “The WW Group through Armacup are, for example, able to offer solutions from China into Oceania to support such sourcing shifts.”


More Opportunities

Container line Hapag-Lloyd has become increasingly involved in mining shipments as it has pushed for special cargo in general, said Sarah Schlüter, Hapag-Lloyd’s senior director, niche products. “I think there are definitely more opportunities,” she said. “We are moving quite a bit of mining equipment – mainly to Australia and South America, including Brazil, Chile and Peru, and also some to Africa.”

There are challenges, she said: “All that equipment is going to places where there is often nothing else. The issue we have is a whole lot of equipment goes in, but no business goes out; also mining operations tend to be in parts of the world not super well-connected, so it usually involves transshipments as well, so higher costs. It is challenging for us to get the boxes out again – we have to reposition them empty most of the time as you cannot really get a circular flow in place.”

Overall, she said, mining offers attractive business in that it has a lot of volume, but it comes with the downside of the carrier being exposed to high costs.

Hapag-Lloyd recently carried tires for large mining trucks and a consignment of mining truck dumpers measuring 10 by 12 meters. “We carry a lot of breakbulk cargo related to mining, including machinery and parts for the vehicles working in the mines.”

For Santiago de Chile-based logistics firm Integral Chile, the focus is on copper mining, where there has been some hesitancy over new investments due to the change in government. “Many investors were waiting to see what the new government’s policies would be regarding mining and other infrastructure projects,” said Rodrigo Izquierdo, deputy general manager. “However, while projects may have stopped, been delayed or put on standby the regular mining activity continued, even when we had full lockdown. They can’t stop because Chile’s main income is from copper.”

Chile is the world’s No. 1 copper producing nation. For the general picture, it is important to differentiate between new and ongoing projects, Izquierdo said. “Regarding the first, there is a lot of investment that has stopped, put on standby or just delayed, because of the high risk of the Covid-19 crisis, and ever higher freight costs that made many projects unviable and the hardware unavailable. On the other hand, ongoing projects are usually long-term and many can’t be stopped, so materials, machines, spare parts, vehicles and other kinds of cargo, are still needed, and freight forwarders are doing their best effort to fulfil this need. Integral Chile participates in different projects – some inside the country, and some with other countries as origins or destinations.”

Last year Integral Chile participated mainly in industrial and construction projects, he said. “But in our domestic division, we have customers that are mining companies and other important suppliers of the sector, such as equipment or machinery, or certification companies that send time-critical samples to laboratories.”


Making Copper Contacts

The copper industry can be difficult to access direct as mining companies often have their own freight forwarders or freight contract rates, Izqeuierdo noted. Integral Chile usually participates by working with other cargoes related with the industry. “For example, we have recently moved 22-tonne power transformers and 5-tonne water pumps, both in the north of Chile and regarding mining sites. We handle that kind of cargo on a more-or-less regular basis.”

Government proposals to raise royalties on copper sales are still up in the air, but Izquierdo said regardless of whether this new tax regime starts or not, the mining industry is so important to Chile that it would not stop. “Some mining companies may try to be more cost-efficient and that’s where we enter. Not to offer lower prices, but to provide a better-over-peers service, so projects can be fulfilled in a very reliable way. After all, logistics and transport companies are a very important component of the value chain within this industry,” he said.

Integral Chile, celebrating its 30th anniversary this year, has five branch offices/sites in Chile and is looking to open more. “For this year, we are evaluating local expansion in some locations within Chile and one of them is precisely to foster mining-related projects and cargo,” Izquierdo said. “This means a significant investment in facilities, personnel, vehicles and other equipment. Also, even though we already belong to several freight forwarder networks, we are investing in some more memberships in 2022 and at least one of them is exclusively project cargo oriented.”

As to expectations for the coming years, WW’s Berg said: “Trying to say something about the more distant future is a challenge at the best of times and now perhaps more so than ever with the world throwing one exogenous shock after another at us.

“Still, we certainly believe that the environmental agenda will be a strong driver for the mining industry going forward. Not only on the demand side for metals, but also for the miners themselves, as illustrated by the ambitious climate targets being laid out by mining majors. The energy transition dictated by COP26 will require vast quantities of key enabling metals due to the material intensity in low-emission alternatives for both power generation and vehicles.”

This, however, will require significant investments from miners, “and we know that the industry has been very prudent in its capital allocation since the end of the super cycle,” Berg said. “We now see the needle moving on capex, but it will require commitment from the industry (and its investors) to develop the required mining and processing capacity in time.” 


Felicity Landon is an award-winning freelance journalist specializing in the ports, shipping, transport and logistics sectors.

Image credit: AAL Shipping