Abstract
South Korea relies on external sources for much of its mineral requirements.
The country imports as
much as 87% of its minerals and a significant
percentage of its energy resources, including almost the
entire demand for
bituminous coal, ores and concentrates of copper, iron, lead and zinc.
However, the
country does host small reserves of gold, molybdenum, silver,
tin, tungsten and zinc.
In May 2009, South Korea’s imports of
heating coal fell 22% due to falling demand from domestic power
producers.
In total, South Korea imported 6.7mn tonnes of coal in April 2009, compared to
8.63mn
tonnes in April 2008, according to the Korea International Trade
Association (KITA). Decreased demand
from South Korea has also depressed
the regional coal market, which is already suffering reduced orders
from
India and China. On average South Korea paid US$101.8 per tonne in April 2009,
down from
US$104.79 per tonne in the same period in 2008. However,
Korea’s major utilities have recently secured
supply deals with
Chinese coal producers at around the mid-US$70’s mark. South Korea
imported
3.28mn tonnes of coal from Australia in April 2009, followed by
2.04mn tonnes from Indonesia. Coalfired
power accounted for around 38.0%
of the country’s total generation in 2008, according to BMI
estimates. We expect the fuel’s market share to be 36.3 terawatt hours
(twh) by 2013, firing an estimated
167twh at the end of the forecast
period. South Korean coal consumption is forecast to increase from
60mn to
63mn tonnes of oil equivalent (toe) by 2013. This equates to a rise in demand
from 89mn to
95mn tonnes of hard coal.
In June 2009, Korea Electrical
Power Company (KEPCO) agreed to purchase a 17% stake in Canadian
uranium
mining company Dension in a deal worth CAD75.4mn (US$65.1mn). In addition,
KEPCO has
agreed an offload deal to take 20% of Denison’s uranium
production – not less than 350,000 pounds (lbs)
per year –
between 2011 and 2015. KEPCO also has the opportunity to take an additional
400,000lbs per
year in the same period, should it decide to.
Denison’s mining assets are located in Athabasca Basin in
Saskatchewan in Canada and in the US in Colorado, Utah and Arizona. A number
of nuclear-capable
countries have been scrambling to buy-up uranium
assets. Due to the threat of climate change, nuclear
power is regarded as
one of the most environmentally friendly ways of producing energy.
Meanwhile, Pohang Iron and Steel Company (POSCO) planned to cut steel
production by up to 8.4%,
or 230,000 tonnes, in March 2009, representing
its fourth consecutive monthly output cut. This latest
reduction comes on
top of the 570,000 tonnes cut in the first two months of 2009 and the 200,000
tonnes
cut in December. It brought forward scheduled maintenance of its
3.1mn tonnes per annum (tpa) No 4
blast furnace by three months, closing
the facility from 18 February for three to four months and
effectively
cutting production by 1mn tonnes in 2009. The steelmaker estimates that Q109
output would
be reduced by a total of 700,000-800,000 tonnes. POSCO CEO
Chung Joon-Yang voiced his concern that
the crisis in the steel industry
could last between two to three years, leading to a 30% reduction in
output.
However, there are some signs of a recovery and in Q309 POSCO is
expected to ease production cuts – as
steel demand is slowly
starting to rise again. Although a full-scale recovery is unlikely in the
second half
of the year, this does suggest that the bottom of the market
has been reached.
Mining forecast
BMI believes that South Korea will
not be as badly impacted by the global slump in the mining industry
as
some nations, because it relies heavily on imports for raw materials. As a
result, many South Korean
metals producers are taking the opportunity to
agree low-cost tenders for raw materials. For example, in
June 2009, five
power utilities confirmed a 45% reduction in prices for thermal coal with
Chinese
suppliers. Korea’s steel industry, meanwhile, is actually
investing heavily in capacity expansion in order
to be able to capitalise
when global demand returns to strength. BMI expects a contraction in South
Korea’s mining sector in real terms over the forecast period, as
industrial demand falls and commodity
prices continue to slump. By 2013,
the market should be worth KRW2.394trn (US$2.39bn).
Global Overview
In
this report, BMI examines the phenomenon of increased Chinese activity in the
global mining sector
and what this means for the industry.
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