South Korea relies on external sources for much of its mineral requirements, importing as much as 97%of the minerals and energy it uses. However, the country does host small reserves of gold, molybdenum,silver, tin, tungsten and zinc.
Imports of coal were up in July 2009, as reported by KITA. Heating coal imports increased 3.7% based ona year-on-year (y-o-y) comparison. Total imports for the first six months of the year, however, were down5% to 50.34mn tonnes. While coal imports were increasing, high stocks and low power demand fromlocal utilities continued to affect imports of liquefied natural gas, which was down for the seventhconsecutive month. In July an average price of US$89.38 per tonne of coal was paid, up from US$82.64in the previous month, but a far cry from prices of up to US$121.54 in the previous year.
With growing energy demands, South Korea is looking to diversify its power supplies and also reduce itsreliance on imports of liquefied natural gas. One method the country is pursuing in order to tackle this isinvesting heavily in developing coal-to-gas technologies. POSCO and SK Energy announced in July2009 that they would be investing KRW3.35trn (US$2.69bn) in developing technology to convert coalinto synthetic natural gas, chemicals and liquid. The government, which believes this is a sector that ispoised for growth that could stimulate the economy, has also set aside KRW25bn (US$20mn) for projectsin the technology. The government anticipates that once the technologies are developed, they could belicensed worldwide, establishing South Korea as a leading player within this area of the global energymarket. POSCO intends to build a plant in Gwangyang, and SK Energy intends to construct a plantoverseas near a low-cost coal mine. POSCO and SK Energy anticipate annual production of 500,000tonnes of synthetic natural gas and 6.3mn barrels of gasoline, respectively.
In Q409 there were some developments with POSCO’s ongoing saga to expand operations into India withthe construction of a 12mn tonne plant. Despite being one of the country’s largest foreign investments,land disputes continue to hamper the progress of the venture. Locals and political parties in the easternstate of Orissa, where the site is expected to be located, oppose the fertile land being used for industrialpurposes as opposed to farming projects. In July 2009, India’s Steel Minister Virbhadra Singh announcedthat he was working with the state government to expedite the process of granting POSCO the requiredlicence to begin mining in the area. There were rumours in August that the site may be moved. However,these were quelled by the Orissa chief minister, Naveen Patnaik, who explained that despite vehementopposition from locals, there was no intention to move the project from the 4,004 acres of land in Orissa.The project was initially announced in 2005 and was scheduled to commence in 2007.
POSCO decided to take measures to protect itself against future market fluctuations, particularly inguaranteeing a customer base for its products should global demand weaken. POSCO has invested in twosteel processing plants, a 65% stake in domestic steelmaker Taihan St.Co, and 90% in Vietnamesecompany Asian Steel Corp. to ensure the company has an outlet for processing inventory. In August2009, POSCO also announced plans to invest in a roll coil factory in Indonesia with a total expectedinvestment of US$2bn-US$2.5bn. The facility, with an expected capacity of 2.5mn tons per year, isproposed as a joint venture with Indonesia’s largest steel maker, PT Krakatau Steel. A memorandum ofunderstanding between the firms is expected to be signed by the year end.
Mining forecast
BMI believes that South Korea will not be as badly affected by the global slump in the mining industry assome nations, because it relies heavily on imports for its raw material needs. As a result, many SouthKorean metals producers are taking the opportunity to agree low-cost tenders for raw materials. Forexample, in June 2009, five power utilities confirmed a 45% reduction in prices for thermal coal withChinese suppliers. South Korean KORES and Daewoo International also agreed to purchase a 7.5%share in a soft coal mine in Australia as a means to secure 1.5mn tonnes of bituminous coal annually.
Korea’s steel industry, meanwhile, is actually investing heavily in capacity expansion is order tocapitalise when global demand returns to strength. A number of firms have chosen to make strategicacquisitions to secure a supply base for raw materials while market prices are low. POSCO in particular isdemonstrating an aggressive investment strategy compared with rivals, and in April 2009 announced thatit would increase its investments by 50% within the year. The company purchased a 90% stake in aVietnamese steel-processing company as well as a 65% stake in a domestic steelmaker. LS-NikkoCopper also announced that it was considering a mining acquisition in H109. BMI forecasts that themining market will be worth KRW2.394trn (US$2.39bn) in 2012, representing growth of just over 7%over since 2009.
Global Overview
In this report, BMI examines the phenomenon of increased Chinese activity in the global mining sectorand what this means for the industry.
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