China’s War on Smog to Lift Aussie Coal and Ore Demand

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Wednesday, February 5th, 2014
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Beijing’s efforts to deal with the China’s worsening urban smog could be a major boon for suppliers of high calibre iron ore and coal.

In the wake of worsening air pollution which led to hazardous smog levels in China’s major cities last year, Beijing has announced that it will tighten emission standards and deal harshly with heavy polluters in key industries such as steel-making and power supply.

Beijing’s determination to deal with its air pollution woes is expected to be a major boon for suppliers of high grade iron ore and coal, as it will compel Chinese steel producers and power plants to seek quality raw materials in order to reduce air pollution.

The use of high grade iron ore and coal results in lower emission levels during processing and production, because they contain fewer polluting impurities such as sulphur.

Australia in particular is set to benefit from China’s clamp down on industrial pollution, given that it is a major supplier of high end iron ore and coal.

China’s new policy will also serve to exclude rival suppliers of iron ore on quality grounds, such as Vietnam, Mexico and Iran.

The decision is also good news for mining giants such as Rio Tinto, BHP Billiton and Vale, as it will increase China’s dependence upon iron ore supplied by Australia and Brazil – already over 70 per cent of the Middle Kingdom imports, and strengthen the ability of the big players to sway prices.

China has long sought to diminish the dominant position enjoyed by the big three mining corporations on the global iron ore market due to the vital role played by the steel-making ingredient in the country’s belated industrialization. It would appear these efforts have now ceded priority to dealing with China’s domestic pollution woes, as the latter already threatens to trigger widespread public discontent.

While China has poured money into clean energy and nuclear power as a means of reducing air pollution, the country will continue to remain heavily dependent upon coal for the foreseeable future.

According to Armond Cohen of the Breakthrough Institute, coal was still far and away the biggest growth area in China’s energy sector in 2013, with new fossil energy output exceeding new wind energy around six fold, and new solar by 27 times, despite the latter logging a record breaking increase last year.
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