Coal has been used since the 1880s to power the industrial revolution, and some people might argue that it time to be replaced. But in fact, the demand for energy, steel and cement are fueling the demand for coal and therefore its mining operations.
The recent Economist magazine article Old king coal, explains how despite the decline of its use in America, the Asian economies who are poor in oil will continue fueling its development with coal. Obviously, the consumption and production of coal will be lead by China, which mines over 3 billion tons of coal a year, three times more than the next-biggest producer—the United States. Yet last year, China overtook Japan to become the world’s biggest coal importer. Most of that coal usage goes to produce electricity, since over four-fifths of China’s electricity comes from coal-fired power plants and this ratio will likely not diminish over time. On the contrary, Chinese officials are worried that a recent spike of 5% in the population due a popular belief that having child in the year of the dragon brings good luck and prosperity to the family, will put more pressure to provide more electricity in upcoming years.
Also, coal is heavily used for steel and cement production. 70% of the steel produced today uses coal, or better known as coking coal. World crude steel production was 1.4 billion tons in 2010 and around 721 million tons of coking coal was used in the production of steel. Coal is also used as an energy source in cement production. Large amounts of energy are required to produce cement. Kilns usually burn coal in the form of powder and consume around 450g of coal for about 900g of cement produced. Coal has benefited by the construction boom in emerging economies, which consumes a lot of steel and cement to build these structures.
That is why coal mining companies overall are having strong financial performances. The Wall Street Journal article Coal, the Hot Commodity for Deals quotes Ernst & Young’s global mining & metals leader, Mike Elliott, who said, “Coal was the hottest area for M&A [mergers and acquisitions] in 2011, and it is only set to get hotter in 2012.” This is supported by the fact that last year, coal accounted for 25% of all mining and metals M&A deals done globally by value. And that $42.1 billion worth of coal mergers and acquisitions easily surpassed takeovers in the gold, copper, iron ore or the oil industries.
With these numbers, we can see why coal will remain the king and coal mining will likely continue its growth trend.