Japan aims to boost coal supply through a technology where lower grade coal with high moisture content is refined into easier-to-burn, higher grade coal.

 

Kobe Steel Ltd. said Wednesday it started building a 600-metric-ton-a-day coal refinement plant in Indonesia earlier this month.

 

The plant will cost around Y8 billion to build. The Japanese steel maker will cover about half the cost, while the Japan Coal Energy Center will cover the rest, said a Kobe Steel spokesman. The center is an industry body consisting of large coal traders and end users such as Mitsui & Co. and Tokyo Electric Power Co.

 

Kobe Steel last year signed cooperation agreements with Indonesian natural resource investment company PT Bumi Resources and its coal unit, PT Arutmin Indonesia. Arutmin owns the coal mine block where the plant is located.

 

The plant, scheduled to begin pilot operations for a year and a half in October 2008, will produce higher grade coal by dehydrating lower grade brown coal from the Satui coal mine in southeastern Kalimantan.

 

Although Indonesia has an abundance of coal reserves, a large portion is brown coal. This technology will enable the country to take advantage of the brown coal, which is otherwise difficult to use, said the spokesman.

 

During the pilot operations, power utilities in Japan and other companies will use the upgraded coal on a trial basis. The Kobe spokesman declined to identify the trial users.

 

Amid rising global energy demand, coal prices have skyrocketed over the past few years from around $20-$30/ton to around $70/ton or more.

 

The spokesman declined to give exact numbers for refinement costs because it depends on the situation, such as access to coal and the location of the plant.

But this technology is competitive enough cost-wise, he said.

 

"The cost, insurance and freight price of Australian coal to Japan is currently around $85/ton. We can easily compete with this level."

 

Kobe Steel, also a plant engineering company, hopes to receive orders for coal refinement plants from coal users worldwide after completing this pilot project, he said.

 

"With this technology, Indonesia may take advantage of its coal reserves, power utilities may buy coal, and we may get plant orders."

 

Japan, the world's largest coal importer, each year uses about 90 million tons of coal for power generation and another 90 million tons for steelmaking, according to the Ministry of Economy, Trade and Industry.

 

About 58% of Japan's coal imports come from Australia, 17% from Indonesia and 12% from China, according to the Ministry of Finance.

 

China recently became a net coal importer, and Chinese exporters have asked their Japanese buyers to accept reduced export volumes so China can meet its domestic coal requirements. Given the situation, Japanese utilities have been looking to diversify their coal sources.