[The Editors' Verdict] Selling Prime Mines While Thermal Coal Prices Soar

Recently, domestic cement manufacturers in South Korea have been lamenting that they cannot produce cement due to the price of thermal coal soaring by 100-200% compared to last year. Thermal coal is a key raw material in cement manufacturing. This is because the price of thermal coal accounts for about 40% of the cost of cement.

According to the Resource Information Service of the Korea Mine Reclamation Corporation, the international price of Australian thermal coal has continued to rise from around $100 per ton in May to maintain around $400 per ton since October. The fundamental reason is that the Chinese government drastically reduced coal mining volumes, causing a coal shortage that pushed up global coal prices.

As of 2019, South Korea imported 132.66 million tons of thermal coal for use in steelmaking, power generation, and cement manufacturing. According to the Korea Cement Association, domestic consumption of thermal coal for cement was 47.5 million tons last year. If the same amount is purchased this year, it is expected to incur an additional cost of about 570 billion KRW. The important point is that if cement supply instability occurs, it could cause significant ripple effects in the construction industry. This means that cement production cannot keep up with demand as the government promotes housing supply expansion, including new town developments, as part of real estate measures.

International raw material prices have been steadily rising. Although the international thermal coal price has fluctuated somewhat in recent days, it is unlikely to fall below $100 per ton at least until the second half of next year. On the contrary, an energy supply shortage may push the price beyond $200. If the sharp rise in thermal coal prices compared to last year continues, it could lead to a contraction in the construction market and disruptions in housing supply such as apartments.

The Korea Mineral Resources Corporation (now Korea Mine Reclamation Corporation) acquired exploration rights for the Wyoong thermal coal mine in New South Wales, Australia, 26 years ago in 1995. Subsequently, in 2005, it acquired an additional 78% stake from the global resource company BHP. After long efforts, it obtained development permits and environmental impact assessment approvals in 2018-2019. Production is now imminent. However, under the Moon Jae-in administration’s policy, the mine is being put up for sale. The Mineral Resources Corporation announced a bid in December last year to sell its entire 82.25% stake, but the sale failed and is currently postponed.

The price of Australian thermal coal averaged $212.5 per ton in October, more than double the $101 per ton in December last year. Cement companies import and use high-quality Australian thermal coal. Last year, about 38% of South Korea’s thermal coal imports were from Australia. The Wyoong thermal coal mine has reserves of 700 million tons on land and 500 million tons offshore. The Mineral Resources Corporation has invested 72 billion KRW in the Wyoong mine to date. Above all, the thermal coal reserves at Wyoong are relatively good quality and can be used for steelmaking, power plants, and cement manufacturing. The corporation’s plan was to produce 5 million tons annually (with average annual sales of $1 billion (1.1865 trillion KRW)) for 28 years. The Wyoong mine is an overseas resource development project that the Mineral Resources Corporation has devoted 26 years to. The government’s rush to sell is aimed at resolving the corporation’s debt, but this is a mistaken judgment.

Thermal coal is an essential energy resource that South Korea must import. The government has sold some of the overseas mines owned by the Mineral Resources Corporation in recent years. However, the corporation’s debt has not decreased. The reasons for this need to be examined. It is urged that instead of selling the few remaining valuable overseas mines such as nickel, copper, and thermal coal, they should be well managed to repay debts and help secure raw materials.

Kang Cheon-gu, Adjunct Professor, Department of Energy Resources Engineering, Inha University