China needs a bigger hammer to beat down commodity prices: Russell
China may need a bigger mallet to hammer the nation's commodity investors and take the wind out of what Beijing believes is a speculative bubble in prices for natural resources.
A raft of new measures were announced last week aimed at increasing costs for investors using the domestic commodity exchanges, the latest salvo from the authorities in their ongoing attempts to control commodity markets.
But evidence from the first week of the increased fees and margins is mixed as to how successful they have been.
While the measures were broad-based and aimed at many commodities, the main interest is in coal, iron ore and steel. All of these have enjoyed stellar rallies this year and are therefore attractive to the retail investors that provide much of the liquidity on China's commodity exchanges.
The Shanghai Futures Exchange raised fees for its benchmark steel rebar contract on Nov. 8, while warning of wild swings in some of its products.
Since then steel rebar has gained in price, rising 8.6 percent from 2,799 yuan a tonne at the close on Nov. 7 to end at 3,041 yuan on Monday. The contract has almost doubled since the start of the year.
So, little success in curbing prices for steel, but there is a bright spot insofar as volumes are down fairly sharply.
While volumes initially rose after the Nov. 8 measures, peaking at 7.075 million on Nov. 10, by Monday they were down to 5.887 million, roughly a quarter of the 22.1 million peak so far this year, reached in late April.
The Dalian Commodity Exchange (DCE) also increased fees, raised margins and set trading limits as part of measures to cool the market - and also met with limited success.
China's main iron ore contract has continued to rally since Nov. 8, closing at 628.5 yuan a tonne on Monday, having hit a 33-month high earlier in the day.
The contract is up 23.5 percent since the close on Nov. 7, and the gain for the year so far is a staggering 166 percent.
Volumes have rebounded since the measures imposed last week, with 2.976 million contracts traded on Monday, even though they did drop initially, falling to 1.249 million on Nov. 11 from 2.7 million on Nov. 7.
DCE coking coal futures have also shrugged off the calming measures, with the price rising to 1,644 yuan a tonne at the close on Monday, from 1,422.5 on Nov. 8. Volumes have dropped slightly in the past week.
POLICY CHANGES MORE EFFECTIVE
Thermal coal futures on the Zhengzhou Commodity Exchange have dropped since closing at 670.6 yuan a tonne on Nov. 7, dropping to 652.4 yuan at Monday's close, but they are still 95 percent higher than they were at the end of last year.
What is clear is that so far the measures imposed to cool commodity markets in November have been nowhere near as effective as similar steps taken in April.
Then, volumes fell sharply across the coal, steel and iron ore contracts, as did prices.
While prices did reverse their losses fairly quickly, volumes didn't recover to nearly the same extent.
This perhaps shows that what is different this time around is that there are fewer market participants than before, and they may be more resilient to the increased costs, especially if they see fundamental reasons for prices to be rallying.
China's coal output fell 12 percent in October compared to the same month a year earlier, showing that miners have been unable so far to respond to Beijing's call to lift output.
Steel production rose 4 percent in October from a year earlier, its third straight monthly increase, as steel mills continue to enjoy stronger margins despite the sharp increases in their main inputs of iron ore and coking coal.
Lower domestic coal production and higher steel output will make it harder for the authorities to restrain commodity prices.
While the higher costs of trading will help, adjusting the policies that have constrained coal mining but allowed for rising steel output will have a far bigger impact in cooling commodity prices.
http://in.reuters.com/article/column-russell-commodities-china-idINL4N1DG03T
Donald Trump Says He’ll Bring Back Coal. Here’s Why He Can’t
President-elect Donald Trump promised repeatedly throughout his campaign that he would revive the coal industry, billing himself as the “last shot for the miners.” And in traditional mining areas—think parts of West Virginia, Kentucky and Pennsylvania—Trump defeated rival Hillary Clinton by large margins. But policymakers on both sides of the aisle say they cannot envision any way for Trump to save the coal industry, whose decline they attribute as much to market forces as Obama-era regulation.
Just a decade ago coal provided half of the energy used for power generation in the U.S., but fracking now fracking has driven a boom in the country’s supply of natural gas and made it a cheaper alternative in most cases. And, with cost in mind, utility companies have made the switch even in places without regulation pushing them to do so. Last year, natural gas and coal-fired power plants each provided about a third of the country’s power supply, according to an Energy Information Administration (EIA) report. Total coal production in U.S. mines declined to about 900 millions last year, only three-quarters of production in 2008, according to EIA data.
Coal also struggles to compete with renewable energy sources like wind and solar in locations where those resources are abundant. The cost of solar panels in particular has declined precipitously thanks to technology advances in recent years. Even conservative states like Texas and Oklahoma have become fast adopters of widely available wind energy.
“Trump is not going to bring all the coal jobs back,” says Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University. “There isn’t a lot of investment activity because in some cases it looks more economically attractive for firms to invest in cleaner technologies.”
Beyond the competition jobs in the coal industry have also disappeared in recent decades as a result of mechanization that began in the 1980s. Approximately 50,000 coal-related jobs have been lost between 2008 and 2012, according to a study from last year. Even if coal production increased, those jobs would not return.
Trump has offered few clues to how he might meet his promise revive coal, but his plan seems to rest largely on gutting environmental regulations, particularly President Obama’s Clean Power Plan. That regulation—issued through the Environmental Protection Agency (EPA)—requires states to come up with plans to reduce their carbon dioxide emissions from the power sector. Scrapping the plan will definitely slow the decline of coal but it will not be enough to stop it entirely and it certainly cannot bring back the jobs that have already disappeared, experts say.
Senate Majority Leader Mitch McConnell said the GOP-led Congress would draft new laws to end what he described as the “war on coal,” but acknowledged that Trump’s promises may be difficult to meet. “We are going to be presenting to the new president a variety of options that could end this assault,” he said, according to comments reported by the Lexington Morning Herald. “Whether that immediately brings business back is hard to tell because it’s a private sector activity.”
Many supporters of environmental regulations say that the federal government should spend to help coal-producing areas transition to jobs in clean technology, but Republicans have thus far remained skeptical of such proposals.
“If we’re concerned about coal country, and I am, we have to do a lot more than just yell,” Van Jones, an environmental activist who served as President Obama’s first-term green jobs czar, said during the campaign. “At some point we have to accept the fact that the clean energy companies are growing faster than everything else.”
http://time.com/4570070/donald-trump-coal-jobs/
G20 nations still financing overseas coal projects: Report
The G20countries continue pumping billions in overseas coaldevelopment and Japan's plans to build dozens of so-called high-efficiency coal power plants, both of which undermine the landmark Paris Agreement and clean energy deployment, two new reports said on Monday.
Over the past nine years, the G20 countries -- led by China, Japan, Germany, South Korea and the US -- have kicked in $76 billion to further coal development in countries such as Vietnam, South Africa, Australia and Indonesia, US-based environmental group Natural Resources Defense Council (NRDC) said in its report.
The report, "Carbon Trap: How International Coal Finance Undermines the Paris Agreement and Clean Energy Deployment", was released on Monday by the NRDC and the Oil Change International on the sidelines of 22nd session of the Conference of the Parties (COP22) here.
In Paris last December, nearly 200 countries agreed to slash their dependence on fossil fuels in a concerted effort to limit global temperature rise to well below 2 degrees Celsius over pre-industrial level in order to avoid a climate crisis.
The Kiko Network also released a report here challenging Japan's plans to build dozens of so-called high efficiency coal power plants.
Essentially this means that, says the NRDC report, on one hand, some of the world's leading polluters have pledged to lower climate-changing carbon pollution within their borders under the Paris Climate Change Agreement, while on the other, these countries are facilitating a massive boom in that carbon pollution by financing coal development elsewhere, and the planet ultimately suffers.
"Our climate knows that countries can't have it both ways. They can't publicly boast about slashing climate pollution at home while also continuing to finance enormous coal development abroad," said report co-author Han Chen, international climate advocate at the NRDC.
"These nations need to clean up their act. They should stop pouring billions into dirty energy and instead put more financial muscle behind clean, renewable energy, and energy efficiency. That will create jobs and protect the planet from climate catastrophe."
The Intergovernmental Panel on Climate Change states the burning of fossil fuels is contributing to the rise in global temperatures.
Unfortunately, key governments continue to invest in projects that further the world's dependence on coal, making climate change worse.
An official statement quoting Belantara Foundation CEO Agus Sari said: "In Indonesia, companies are already divesting from coal investments due to the risk of stranded assets. We know that in Indonesia, coal will not solve our energy access issues, because what we need is greater investments in renewable energies suited to our geography."
"Japan and China are both leaders in renewable energy technology, yet instead of growing their share of the clean energy market, they are choosing to choke the planet by backing dozens of new coal-fired power plants around the world," said Alex Doukas, senior campaigner with the Oil Change International.
Japan has the most financing in the pipeline for future coal projects.
Kimiko Hirata, International Director of the Kiko Network, said: "Even after the historic Paris Agreement and the OECD agreement were reached, Japan is still investing significant amounts of money in coal and encouraging new projects -- ignoring the fact that there's no space in the global carbon budget to build new coal."
She said Japan cannot be proud of competing with China over spreading dirty energy all over the world.
"As a signatory to the Paris Agreement, Japan should stop financing coal immediately and stop causing health problems and climate disaster," Hirata said.
The third report released here on Monday by the Climate Analytics outlines what the Paris Agreement means for coal power globally. It says the world needs to reduce coal use, starting with the developed countries.
The study speaks to the world's energy plans going forward, how developed countries need to stop using coal by 2030 and China by 2040, if the world needs to keep well below 2 degrees.
It also links with the concepts of stranded assets, and the co-benefits of reducing coal use, for example, air quality gains.
Global carbon growth stalls as US coal continues to slump
The Global Carbon Project annual analysis shows that CO2 emissions were almost flat for the third year in a row, despite a rise in economic growth.
The slowdown in the Chinese economy since 2012 has also been a key factor limiting carbon.
Experts believe it is too early to say if global CO2 emissions have peaked.
Impact of recession
The annual output of carbon dioxide from the use of fossil fuels increased by about 3% per annum through the first decade of this century.
Thanks to the global recession, emissions started to slow down in 2010. However, they have now stalled for the past three years at around 36.4bn tonnes of CO2.
China's rapid economic expansion, which saw two new coal-fired power stations being built every week, drove the global rise in CO2 over the past 16 years.
But there has been a sharp slowdown in coal use since 2012, driving Chinese CO2 emissions down 0.7% in 2015, according to this study, and a further 0.5% in 2016.
"It is hard to say whether the Chinese slowdown is due to a successful and smooth restructuring of the Chinese economy or a sign of economic instability," said Glen Peters, from the Centre for International Climate and Environmental Research (CICERO) in Oslo, who co-authored the study.
"Nevertheless, the unexpected reductions in Chinese emissions give hope that the world's biggest emitter can deliver much more ambitious emission reductions."
US emissions in 2016 continued a downward trend that began in 2007. They were down 2.5% in 2015 and a further 1.7% decline is projected for this year.
The drop is due to a reduction in demand for American coal, something that President-elect Trump has vowed to change.
"With all eyes focussing on the fallout of the US election result, it is worth noting that wind, solar, and gas continue to displace coal in US electricity production," said Dr Peters.
"Trump's plans to revive the struggling coal industry might not be able to counteract the existing market forces leading to coal's decline," he said.
While US and Chinese emissions were going down, India's have been going up significantly. They have been growing by around 6% per annum over the last decade and slowed marginally to 5% in 2016. This is expected to be continued as India looks to double domestic coal production by 2020.
The global use of fossil fuels has been critical to economic growth for decade but one of the encouraging factors in this new analysis is that the stalling of emissions has occurred while economic growth has continued. The authors say it is far too early to proclaim a global peak in emissions, but other observers believe we could be at an important moment.
"This could be the turning point we have hoped for," said Prof David Reay, from the University of Edinburgh.
"Ever since the industrial revolution, our global carbon emissions have been tightly bound to economic growth. To tackle climate change those bonds must be broken and here we have the first signs that they are at least starting to loosen."
However, there are a growing number of uncertainties ahead.
While China's emissions have slowed, there are worries they could accelerate again as the building of coal-powered stations has continued.
President-elect Trump has promised not only to revive the US coal industry but to "cancel" the Paris Climate Agreement where countries agreed to voluntarily reduce their emissions of CO2.
This would be a foolish thing to do say many experts, who believe that the Paris deal, and the de-coupling of economic growth from carbon emissions, are both key to avoiding dangerous levels of global warming.
"Climate mitigation policies around the world are beginning to deliver. Hopefully, emissions have peaked," said Prof Piers Forster, from the University of Leeds.
"There is also a lesson for the incoming US administration here - you don't need coal to drive economic growth."
The new analysis has been published in the journal Earth System Science Data.
http://www.bbc.com/news/science-environment-37949878
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Anurag Singal
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Essel Mining & Industries Ltd
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