"The Boys" (India and China) are on the hunt to secure coal reserves, and they're scaring South Africa
South Africa makes coal a national priority
"Securing coal for domestic energy needs must be a national priority," Barbara Hogan, the Public Enterprises Minister, said in a written response to a parliamentary question.
"The current regulatory environment may not sufficiently protect South Africa from the international market for steam coal and aggressive interest shown by India and China to secure access to imported coal."
Here is the issue. China and India import half of South Africa's thermal coal, which is 4.9MM tons. The combined demand for thermal between "The Boys" is 63.9MM, according to JP Morgan. These two countries are in an arms race for coal reserves, and the activity will continue in the months to come. While South Africa is concerned, there are plenty of US producers drooling at the prospect of loading up the rails full of thermal and sending it to Asia.
There is a shortage in India:
- India has an 81MM ton shortage of coal, and is exploring Columbia, the US, and Russia
- India's Essar bid for Trinity Coal to power their steel and power plants
China is reaching:
- Chinese are paying 45% more for Columbia coal than Europe
- Increasing the value/quality of your own coal via White Energy is a good step, but won't be the answer
Bottom line: Combine international demand with low utility stockpiles in the US, and we are setting up for a coal shortage in the back half of this year.
Disclosure: Long WECFY, CNX, BTU, JRCC, MEE, CLD