South Korea Mining Report Q3 2009

South Korea Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Korea's mining industry

South Korea relies on external sources for much of its mineral requirements. The country imports as much as 87% of its minerals and a significant percentage of its energy resources, including almost the entire demand for bituminous coal, ores and concentrates of copper, iron, lead and zinc. However, the country does host small reserves of gold, molybdenum, silver, tin, tungsten and zinc.

In May 2009, South Korea’s imports of heating coal fell 22% due to falling demand from domestic power producers. In total, South Korea imported 6.7mn tonnes of coal in April 2009, compared to 8.63mn tonnes in April 2008, according to the Korea International Trade Association (KITA). Decreased demand from South Korea has also depressed the regional coal market, which is already suffering reduced orders from India and China. On average South Korea paid US$101.8 per tonne in April 2009, down from US$104.79 per tonne in the same period in 2008. However, Korea’s major utilities have recently secured supply deals with Chinese coal producers at around the mid-US$70’s mark. South Korea imported 3.28mn tonnes of coal from Australia in April 2009, followed by 2.04mn tonnes from Indonesia. Coalfired power accounted for around 38.0% of the country’s total generation in 2008, according to BMI estimates. We expect the fuel’s market share to be 36.3 terawatt hours (twh) by 2013, firing an estimated 167twh at the end of the forecast period. South Korean coal consumption is forecast to increase from 60mn to 63mn tonnes of oil equivalent (toe) by 2013. This equates to a rise in demand from 89mn to 95mn tonnes of hard coal.

In June 2009, Korea Electrical Power Company (KEPCO) agreed to purchase a 17% stake in Canadian uranium mining company Dension in a deal worth CAD75.4mn (US$65.1mn). In addition, KEPCO has agreed an offload deal to take 20% of Denison’s uranium production – not less than 350,000 pounds (lbs) per year – between 2011 and 2015. KEPCO also has the opportunity to take an additional 400,000lbs per year in the same period, should it decide to. Denison’s mining assets are located in Athabasca Basin in Saskatchewan in Canada and in the US in Colorado, Utah and Arizona. A number of nuclear-capable countries have been scrambling to buy-up uranium assets. Due to the threat of climate change, nuclear power is regarded as one of the most environmentally friendly ways of producing energy.

Meanwhile, Pohang Iron and Steel Company (POSCO) planned to cut steel production by up to 8.4%, or 230,000 tonnes, in March 2009, representing its fourth consecutive monthly output cut. This latest reduction comes on top of the 570,000 tonnes cut in the first two months of 2009 and the 200,000 tonnes cut in December. It brought forward scheduled maintenance of its 3.1mn tonnes per annum (tpa) No 4 blast furnace by three months, closing the facility from 18 February for three to four months and effectively cutting production by 1mn tonnes in 2009. The steelmaker estimates that Q109 output would be reduced by a total of 700,000-800,000 tonnes. POSCO CEO Chung Joon-Yang voiced his concern that the crisis in the steel industry could last between two to three years, leading to a 30% reduction in output. However, there are some signs of a recovery and in Q309 POSCO is expected to ease production cuts – as steel demand is slowly starting to rise again. Although a full-scale recovery is unlikely in the second half of the year, this does suggest that the bottom of the market has been reached.

Mining forecast

BMI believes that South Korea will not be as badly impacted by the global slump in the mining industry as some nations, because it relies heavily on imports for raw materials. As a result, many South Korean metals producers are taking the opportunity to agree low-cost tenders for raw materials. For example, in June 2009, five power utilities confirmed a 45% reduction in prices for thermal coal with Chinese suppliers. Korea’s steel industry, meanwhile, is actually investing heavily in capacity expansion in order to be able to capitalise when global demand returns to strength. BMI expects a contraction in South Korea’s mining sector in real terms over the forecast period, as industrial demand falls and commodity prices continue to slump. By 2013, the market should be worth KRW2.394trn (US$2.39bn).

Global Overview

In this report, BMI examines the phenomenon of increased Chinese activity in the global mining sector and what this means for the industry. SHOW LESS READ MORE >

Executive Summary

SWOT Analysis
SWOT AnalysisSouth Korea Political SWOT
South Korea Economic SWOT
South Korea Business Environment SWOT

Special Focus: Outlook For Global Mining
Table: Biggest Chinese Acquisitions In Australia Since 2005
Table: Global Mining – Top Five Companies By Market Capitalisation (US$mn)
Table: Global Mining – Key Players’ Future Investment Plans (selected projects)

Industry Trends And Developments
Market Overview
Table: Mines In South Korea
Latest Developments
Regulatory Structure And Developments

Key Projects
Metals
Iron
Copper
Lead, Zinc And Silver
Nickel
Uranium
Minerals
Coal

Business Environment
Regional Overview – Asia Pacific
Table: Asia-Pacific Business Environment Ranking
South Korea – Business Environment Ranking
Limits To Potential Returns
Risks To Realisation Of Returns
Legal Framework
Table: BMI’s Legal Framework Ratings
Labour Force
Table: South Korean Demographic Indicators, 2000-2030
Foreign Investment Policy
Table: South Korea’s Annual FDI Inflows, 2000-2006
Table: Asia’s FDI Inflows, 2005 & 2006
Political Risk Analysis

Industry Forecast Scenario
Metals Price Outlook
Aluminium
Table: BMI’s Aluminium Forecast
Copper
Table: BMI’s Copper Forecast
Table: Stock Levels At London Metals Exchange Warehouses (tonnes)
Global Industry Overview
Regional Analysis
South Korea – Mining Industry Forecast
Table: South Korea Mining Industry Forecast

Competitive Landscape

Company Monitor
POSCO
LS-Nikko Copper
Poongsan Holdings Corporation
Oriental Minerals

Appendices
Appendix A: Global Assumptions
Table: Global Assumptions, 2007-2013
Table: Developed States GDP Growth, 2008-2010
Table: Emerging Markets GDP Growth, 2008-2010
Table: Commodity Prices, 2007-2010
Appendix B: Business Environment Ratings
Ratings Overview
Table: Mining Business Environment Indicators
Table: Weighting Of Components

- POSCO
- LS-Nikko Copper
- Poongsan Holdings Corporation
- Oriental Minerals