A Wonderful “Dirty” Rock… Here’s Why There Will be Increased Demand For Coal

Guest Post by Chris MacIntosh

Bet you didn’t know you can produce clothing from coal.

Natural Gas and Coal: Commodities Tied at the Hip

The point is that the shortages of natural gas will have to be made up with coal — the two commodities are tied at the hip. Check out this old article excerpt from 2019:

Clothing and drinking bottles made from coal? In China, that’s more and more the case. Widely viewed in much of the world as dirty, planet warming, and on its way to obsolescence, coal is on the ascent in China’s chemical industry, where it is increasingly a raw material for making polyester fiber and resin.

China’s chemical industry is at a chronic cost disadvantage compared with other countries’ because of a lack of domestic crude oil and natural gas. But China has a lot of coal. China produces millions of metric tons of polyvinyl chloride, polyolefins, and liquid fuels every year using coal as a raw material.

Until recently, polyester wasn’t on the list of materials made from coal, but this is changing rapidly. Relatively new processes that use coal to obtain ethylene glycol – a raw material for making polyester fiber and packaging resin – have gained traction in China.

And the pace of adoption of coal for making ethylene glycol may accelerate if a new technology takes hold. In Inner Mongolia, a Chinese company is building a huge facility using a new process that, its backers say, makes ethylene glycol at a lower cost and with improved plant safety.

Every year, China imports about one-quarter of the world’s ethylene glycol output of 31 million metric tons, says Atul Shah, licensing development director at Johnson Matthey (JM), which co developed the new process with Eastman Chemical. “China imports a lot of ethylene glycol, and the government wants to reduce this.”

The pace at which coal-based production is being implemented in China is spectacular. From nothing in 2011, as of 2019, China now has 3.5 million tonnes of coal-based ethylene glycol capacity, says Cao Mengting, a polyester consultant at CCFGroup, which is focused on the Chinese fiber industry. By 2022, this capacity will have doubled, she expects. Today, coal-based facilities represent about 40% of China’s ethylene glycol production capacity and 14% of actual output, according to Michael Zhao, another CCFGroup consultant. In five years, he expects coal-based facilities will account for 20% of the country’s output, while production capacity will be half of the country’s total.

Yes, Paris, those sunnies (including the lenses), the headband, and that pretty little number you’re wearing probably came from coal. Oh, forgot to mention the makeup! Gwyneth, your glass bottle was definitely produced using coal. Isn’t it a funny world we live in?

Supply Destruction

While China has been investing in coal…

You can’t make this up — a judge making a judgment based on climate change. It is an ideology. A cult.

A land court in Australia’s Queensland state has recommended that a new thermal coal project owned by mining magnate Clive Palmer should not go ahead on the grounds that its emissions will contribute to climate change and harm human rights.

Judge Fleur Kingham found that the mine would pose unacceptable risks to the state’s population, given the mine’s proposed lifetime emissions and a narrowing global carbon budget, she wrote in her judgement.

“Ultimately, I have decided to recommend both applications are refused,” Judge Fleur Kingham wrote.

From a different perspective, even if one could get the go ahead to build a new mine, pray tell, where does the money come from to finance it?

With coal prices hitting record highs, companies would normally expand their operations, but projects are being left on the table as most Western banks stand by climate pledges to restrict lending to the sector, according to a dozen mining company executives and investors.

Environmental lobby group Reclaim Finance says 96 banks now have policies to restrict financial services to the coal sector. The biggest Western lender to coal miners in 2020 was Deutsche Bank (DBKGn.DE) with $538 million followed by Citi on $300 million. By 2021, that had dropped to $255 million for Deutsche and $218 million for Citi, according to data compiled by Reclaim Finance.

“With regard to thermal coal mining, any transaction in coal mining requires an enhanced environmental risk review,” a Deutsche spokesperson said, adding that the bank was updating its coal policy.

Now, companies that depend on coal for more than 50% of their revenue must show credible diversification plans to get financing from Deutsche. Firms without such plans will be phased out of the bank’s portfolio by 2025, the spokesperson said.

A number of banks including ANZ (ANZ.AX), Bank of Montreal (BMO.TO), Barclays (BARC.L), BNP Paribas (BNPP.PA), Commonwealth Bank (CBA.AX), Santander (SAN.MC), Standard Chartered (STAN.L), RBC (RY.TO) and UniCredit (CRDI.MI) financed coal miners in 2020 but did not in 2021, the Reclaim Finance data showed.

Investment implications

In the investment world you’re never supposed to say this, but this time it really is different. Supply isn’t rising to the occasion (of high prices), and it won’t rise unless the ideology changes. What will cause a change to the climate change ideology? Energy prices 50% higher than current? The masses rising up in Western countries, demanding the blood of politicians because living expenses are so high? Well, whatever it is it will have to be huge because even with the current “energy crisis” the folks keep doubling down on the ideology (namely in the West). It really is mindblowing to witness.

Here’s the World Coal Index vs S&P 500. The bull trend is only just getting going.

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