Vale is pulling out of Tete as part of its climate emergency commitment to end coal production. Several announcements last week set out a complex planned withdrawal.
Vale announced on 20 January that to allow the Japanese company Mitsui to leave the project, buying its 15% of the Moatize coal mine and its 50% of the 900 km railway and port facilities Nacala Logistics Corridor, for $1. But it will take on Mitsui's $2.5 bn debt. The new wholly owned company will only mine high quality coking coal, and hopes to mine 15 mn tonnes this year and 18 million tonnes next year. But the announcement stressed that Vale wants to disinvest from all coal production.
On 22 January Reuters reported that Vale has hired Barclays and Standard Chartered to sell the mine, railway and port, probably to China or India. China produces half the world's steel and is anxious to replace Australian coal which has been stopped because of a diplomatic confrontation.
India is the second largest global importer of coal and an Indian ICVL company bought the Rio Tinto mine in Benga in 2014, mainly for coking coal. Another Indian company, Jindal, also has a coal mine in Tete.
To mine coking coal large amounts of cheaper thermal coal must be removed. When these mines opened, the thermal coal could be sold, but now it cannot and will be left in giant piles. Coking coal will have a market for perhaps a decade more.
Why is coking coal still needed?
Coking or metallurgical coal remains essential for steel making. A race is on to develop ways to replace it and production of coal free steel should start in the next five years. So there will remain a market for coking coal for another decade.
Steel-making dates back 2500 years in Anatolia and East Africa, and blast furnaces were developed in China and East Africa. China now produces half of the world's steel. Tanzanian production was stopped by German colonisers who did not want competition with the growing German iron and steel production.
Initially wood was used, but China began using coal in the 11th century. Coal is converted to "coke" by heating it in low oxygen conditions to drive off water and unwanted chemicals. Coke and iron ore is put into a blast furnace to reduce iron ore (Fe2O3) into pig iron (2Fe). Coking coal enters the process again in the next step of converting iron to steel, when it provides both energy and carbon for the final alloy.
Under rapid development are methods to replace coking coal at both steps. Hydrogen is becoming an important non-carbon industrial fuel, because it can be produced from electricity, and renewable electricity sources are being rapidly development. Iron can be reduced to pig iron through "direct reduction" processes using hydrogen. Electric arc furnaces now produce 30% of the world's steel (mainly from scrap) and do not need coal for energy, and are increasingly used from production of steel from pig iron, with other sources of the carbon than coking coal. It is predicted that within a decade a coking coal demand will be dropping significantly. But until then, Moatize should have a market for coking coal.