There was been quite a stir in the energy sector as of late, given the changing dynamic in international relations between Australia and China.


When the National Development and Reform Commission put forth a proposal to create greater international restrictions on the ash and sulphur industry, there was no specific indication that it would apply to Australia’s exports to China.


Greg Evans from the Minerals Council of Australia said in a recent press release that, “Australia is very fortunate to have some of the highest quality coal in the world.


Former federal Industry Minister Ian Macfarlane had this to say in relation to these new restrictions, “In the longer term, I think the value of Australian coal compared to some of our competitors will actually see Australian coal reap a premium.”


It is estimated that the People’s Republic of China consumes an unfathomable 3.5 billion tonnes of coal. Just to give an idea of how big this market, 3.5 billion tonnes rivals the quantity that the rest of the world consumes!


Unfortunately, from 2001 to 2011, the excessive demand for coal in China resulted in a significant rise in price for coal globally. The large divide between demand and supply was a staple of the first decade of the 21st century.


Each year China was churning through as much as 11% more coal than each year previous. Coal production rose 13% over the course of 2001 to 2011. As coal, for the purpose of generating power, doubled, tripled and the quadrupled, China went from the being the world’s largest exporter of coal to the world’s largest importer!


This excessive and fast growth has put China at risk. It’s overall GDP is currently half of what it used to be right before the global financial crisis of 2008 impacted markets globally.


There is also a lot of political will in China to reduce the impact of industry on the environment. Beijing’s skies can be so noxious that people have been known to fall sick due to pollution. What started as a joke, bottled air from the mountains, has become a bit of a novelty for those sick of the pollution of city life.


The People’s Republic of China made this official statement in relation to the environment and climate change, “We will declare war on pollution and fight it with the same determination we battled poverty.”


What does all this have to do with steel? A drop in coal demand may mean a reduction in demand for steel from the world’s up-and-coming superpower.


As demand for coal has slowed down, China’s industrial output has reduced even more than the rate of growth of their GDP. For Australia this means that there is an even greater reduction in growth for our coal-intensive heavy industries.


As the demand for coal wanes, steel production in Australia may be affected. Many coal producers have argued that climate campaigners opposing new coal mines in areas such as Happy Valley, Mt William and Pike River that there would be no way for new steel.


There are different processes being used in places like New Zealand’s Glenbrook Steel plant to produce steel without using high concentrations of coal. The process employed in this plant uses a coking coal found on the west coast of New Zealand’s southern most island.


The higher carbon content found in these coals reduces the negative effects and waste of typical coal production. The Glenbrook Steel plant is a great example moving into the future. They are able to supply up to 90% of New Zealand’s needs using a mix of natural gas, electricity and coal. The company also recycles its steel.


This raises the question of sustainability in the steel industry. If Australia expects to maintain it’s global leadership position in the face of changing international relations and altered dynamics in terms of export and import of goods, then new techniques will need to be employed.

So, is it possible to use less coal than we do at the moment? The answer is that we could do a better job recycling steel. Recycling steel requires significantly less power than producing steel brand new. According to estimates, steel recycling globally is at 30%. Theoretically there are no limits to how many times steel can be recycled, but even given the practical constraints, it is possible for the global steel industry to be reusing up to 80% of its steel.