MCX Copper positive; Comex Copper bullish ahead of FOMC meeting

Copper futures on India's Multi Commodity Exchange (MCX) is positive and the base metal is expected continue with the trend for the day, according to our analyst at Commodity Online. The base metal prices in the global market recorded an up-tick on Wednesday and Comex copper was seen trading bullish.

Copper futures for September delivery on Globex division of Comex was seen trading up by 1.20% at $3.079 per pound as of 02.15 IST on Wednesday.

“For intra-day, resistance for the MCX copper is seen at 419 and 422 levels while support is seen at 412 and409 levels. Intra-day traders may buy at lower levels,” said Tarang Parmar, Research Analyst at Commodity Online.

MCX copper for August delivery was seen trading up by 1.59% at Rs.417.75 per kilogram as of 02.20 PM IST on Wednesday.

Depreciation of Indian Rupee was seen supporting the commodity movement on MCX to certain extent on Wednesday. As of now Indian Rupee was seen depreciating by 0.18% against US Dollar at 61.045 per US Dollar.

In the global market, copper recorded an up trend after a report that China would continue with its stable second-half economic growth amid highly complicated domestic and international conditions. Xinhua News Agency reported this fact on Tuesday after a Politburo meeting led by President Xi Jinping.

US ADP Nonfarm Employment Change (The ADP National Employment Report) and quarterly data on Gross Domestic Product (GDP) are scheduled to be released at 05.45 and 06.00 PM IST today.

The US Federal Reserve's Federal Open Market Committee (FOMC) statement is expected at 11.30 PM IST today and traders are expected to critically analyse the statement to gather clues whether US Federal Reserve withdraw its monetary stimulus later this year.

According to provisional results of the Federal Statistical Office (Destatis), retail turnover in June 2013 in Germany decreased 1.0% in nominal terms and 2.8% in real terms compared with the corresponding month of the previous year. The number of days open for sale was 25 in June 2013 and 26 in June 2012.

In June 2013, a total of 41.8 million persons resident in Germany were in employment according to provisional calculations of the Federal Statistical Office (Destatis). Compared with June 2012, this was an increase of 232,000 persons in employment or 0.6%.

METALS-Copper falls to 3-week low on fears of gloomy China data

Analysts expect China manufacturing contracted in July

* CTAs driving copper market lower, hoping for more losses

* Investors cautious ahead of Fed meeting

* Nickel weak as inventories rise

By Silvia Antonioli and Eric Onstad

LONDON, July 30 (Reuters) - Copper slid to its weakest in nearly three weeks on Tuesday as expectations of weak manufacturing data from top consumer China dimmed prospects for growth in metals demand.

Benchmark copper on the London Metal Exchange (LME) lost 2.1 percent to close at $6,735 a tonne, the lowest since July 10.

Traders said commodity trading advisors or CTAs, which usually make trades based on technical trends and momentum, had driven the recent move lower, capitalising on market worries about Chinese growth as chart levels were breached. The metal is down 15 percent on the year.

The bears were hoping to force a break below the lowest level hit so far this year of $6,602 a tonne, touched on June 25, they added.

Investor sentiment turned negative on expectations that activity in China's vast manufacturing sector may have contracted in July for the first time in 10 months, a Reuters poll showed.

Purchasing managers' indexes (PMI), barometers of the manufacturing sector, will be released on Thursday. Readings above 50 indicate expanding activity while those below point to contraction.

"Sentiment right now is not very much in favour of commodities. The whole industrial metals complex is under pressure and it is very much about China," Commerzbank analyst Eugen Weinberg said.

China's July PMI data is expected to produce the lowest reading since September 2012, he said.

"It could be below 50, which would point to contraction of the economy and this would weigh especially on industrial metals given China's importance for these markets," Weinberg said.

China accounts for about 40 percent of global copper consumption.

Investors were also cautious ahead of a U.S. Federal Reserve meeting that may provide clues on the timing of a stimulus rollback, which could cut global commodities demand.

Metals were also pressured by a stronger dollar, which makes commodities priced in the U.S. currency more expensive for buyers in other countries.

The dollar hit session highs against the euro as investors pared back long positions on the euro heading into the Federal Reserve's policy announcement on Wednesday.

BELOW THE SURFACE

Copper inventories on the Shanghai Futures Exchange, however, were telling a different story that reflected increased physical demand, falling to the lowest in more than 10 months, weekly stocks data showed on Friday.

"Under the surface the situation is better than many fear. It is the sentiment that is dragging prices, not demand weakness, because the weakness is already priced in," Weinberg said.

Among other metals, nickel, mainly used to produce stainless steel, also extended losses, pressured by high inventories, over-production and surpluses. It fell 1.2 percent to close at $13,525 a tonne.

"Nickel is the metal that continues to see selling ... looking to re-test the lows of $13,300 seen earlier this month. LME inventory for nickel continues to rise," analyst Walter de Wet at Standard Bank said in a note.

LME nickel stocks have more than doubled since the beginning of last year to 200,790 tonnes.

Three-month aluminium ended at a three-week low of $1,776 a tonne, down 1.2 percent, and tin lost 0.75 percent to $19,775.

Zinc shed 0.5 percent to close at $1,836 a tonne, and lead gave up 1.7 percent to finish at $2,030.

NSW government proposes mine approvals overhaul

The New South Wales government is proposing changes to regulations governing mining proposals.

The state government yesterday announced it wants to amend existing mine planning laws to improve certainty for both community members and investors.

The amendments will also see the economic importance of mining projects considered in the approvals stage and would set standards for air quality, noise and water pollution.

But the NSW Environmental Defenders Office claims the proposed changes to how mines are assessed are discriminatory, the ABC reports.

Resources minister Chris Hartcher said the mining sector has propped up the state’s economy for some time and the NSW government is determined to ensure it has a strong future.

“Our vision is for a vibrant and prosperous mining industry that continues to deliver jobs and investment to rural and regional NSW, whilst ensuring the protection of our valuable agricultural land and water resources,” Hartcher said.

“In NSW alone, more than 35,000 people are directly employed in the mining and minerals industries, along with 90,000 workers whose jobs are indirectly supported through mine and non-mine related services.”

He said the changes will reduce barriers to investment and provide a balance between the potential impacts and benefits mining projects deliver.

“While the assessment of major projects has always been about balancing their economic and employment significance against any potentially adverse impacts, there have been no clear guidelines as to how these issues should be balanced,” Hartcher said.

The minister explained the proposed amendments will provide a clearer approvals process, ensuring the significance, size and quality of the resource is considered and economic and environmental concerns are balanced.

It will also outline a key environmental, ecological and amenity criteria and set standards mining projects must meet in order to limit noise and dust impacts.

NSW Minerals Council chief executive Stephen Galilee said the draft amendments to the assessment process of major mining projects is "an improvement that provides more certainty for all". 

"It ensures appropriate consideration of the economic benefits while clearly stating the need for projects to meet strict environmental standards."

But critics have slammed the changes, saying residents will have no “hope in hell” of stopping mining developments and have accused the state government of caving to the mining sector’s demands.

EDO executive director Jeff Smith said the environmental impact benchmarks would only apply to affected residents who own their properties, not those who rent.

"This proposal by the government does discriminate between owners who would benefit from the development standards around air quality and noise impacts and so on, versus renters who would not be subject to those same standards," he said.

The EDO claims the proposed changes to planning regulations are designed to stop mining approvals being overturned the way Rio Tinto's Hunter Valley Warkworth mine was.

Ministerial approval for the Warkworth expansion was overturned in a landmark decision in the Land and Environment Court on social and environmental grounds.

Rio slashed 40 jobs the following week and warned it would review the viability of the mine, as Coal & Allied managing director Darren Yeates slammed the NSW planning system after the decision.

Smith said the changes would mean such appeals couldn’t occur.

"In that case the chief judge at length talked about the need to balance economic, social and environmental factors and in the particular circumstances of that case he found that the economic benefits of the proposal were outweighed by the adverse social and economic impacts," he said.

Labor minister Luke Foley said the overhaul will limit the state’s power to refuse a proposed development.

“The government has caved in to the demands of Rio Tinto and the Minerals Council and is watering down the assessment process," Foley said.

"This is about gutting the Land and Environment Court's ability to ever again deliver a Bulga-like decision."

Foley said the move fails to protect communities from developments, warning Rio could resubmit its Bulga application, Business Spectator reports.

"This is about giving a green light to large scale mining proposals come what may...

"Communities will know for sure, they'll know for certain, they don't have a hope in hell of stopping a large scale mining development."

Local Bulga residents in the Hunter Valley fought mining giant Rio Tinto for three years, attempting to halt the expansion of the Warkworth open-cut coal mine.

According to the Newcastle Herald Bulga-Milbrodale Progress Association spokesman John Krey said the draft policy is scandalous and is calling for a parliamentary inquiry.

"It's just set things back 20 years," Krey said.

"We know the Minerals Council and mines have both had access to the minister, yet Barry O'Farrell refused to meet with us.

"Something smells here, which I think needs to be formally investigated."

Nature Conservation Council of NSW campaign director, Kate Smolski, labelled the legislation as dishonest.

"It has been designed to give the appearance of setting new minimum environmental standards but in fact provides loopholes that are big enough to drive a mining truck through,” she said.

"The discretionary powers go all one way - in favour of development."

Earlier this month the NSW Minerals Council said project deferrals and postponements of 12 months or more will jeopardise 29,000 jobs across the state and result in $10.3 billion in lost investments.

Galilee said new research by PricewaterhouseCoopers highlights the high stakes unless the approvals system is fixed through the new bill.

“Overall the government is aware that unless they get the planning system right, there is going to be a significant economic cost.”

He said project delays could result in $600 million a year in lost mining royalties.

Rio Tinto agreed and said swift changes are required in the planning system to curtail more job cuts and spur long term investment.

“We need immediate action from the NSW government to restore certainty and consistency to the planning system for major mining projects,” Rio Tinto chief executive energy Harry Kenyon-Slaney said at the time.

SIR LUNCHALOT AND THE $30 MILLION CROOKED MINING DEAL: Ex Ministers May Now Face Charges

Criminal charges could be next for former NSW Labor MPs Eddie Obeid and Ian MacDonald after a six-month corruption inquiry found they had acted dishonestly and referred their cases to the Director of Public Prosecutions.

The Independent Commission Against Corruption, in its report released in Sydney today, found both engaged in corrupt conduct over a coal mine deal which netted the Obeid family $30 million.

After an inquiry which ran for months, ICAC said in its report that Macdonald, then the state resources minister, granted the lucrative Mount Penny coal mining licence over land owned by the Obeids in the New South Wales Bylong Valley.

It was decided the Obeids then encouraged their friends to buy land in that area, hiding their involvement through a complex financial web, which included the use of multiple companies.

As part of the slew of findings against Obeid, the commission also said the former MP and Labor power-broker acted corruptly when he, along with Ron Medich and Lucky Gatellari, arranged prostitutes as favours, according to ABC News.

Medich is a property tycoon accused of organising the contract killing of ex-business partner Michael McGurk, who was killed outside his North Shore home by a single bullet to the head in September 2009.

Gatellari is a former champion boxer who was sentenced to a minimum of seven-and-a-half years in prison in May over his role in McGurk’s murder. He pleaded guilty to being an accessory before the fact.

ICAC also found Obeid’s son, Moses, to have acted corruptly, and made similar findings against lawyers John McGuigan and John Atkinson, businessman John Kinghorn, and banker Richard Poole.

MacDonald was also accused in the ICAC report of giving misleading evidence, according to The ABC.

“In some instances, the commission has come to the view that Mr Macdonald deliberately gave untrue evidence,” the report said.

“The Commission came to a view that Mr MacDonald was tailoring his evidence to fit the evidence of other witnesses, and attempting to concoct an innocent explanation to explain away damming facts…

“Overall the Commission came to a view that it could not rely on any of the evidence of Mr Macdonald, save where it involved an admission against interest or where it was corroborated by evidence the Commission regarded as reliable.”

Prime Minister Kevin Rudd this morning said anyone found to be corrupt in the inquiry “should face the full force of the law”.

“That’s what I want to see happen.”

The case has been passed along to the Director Of Public Prosecutions.

Also in line for charges over the Mount Penny deal are Eddie Obeid’s son Moses Obeid, Travers Duncan, John McGuigan, John Kinghorn, Richard Poole and John Atkinson.

Duncan, Poole, Atkinson and McGuigan may also be referred to the corporate regulator over suggestions they attempted to misleads the market.

ICAC also investigated former roads minister and treasurer Eric Roozendaal, over allegations he was bribed with a discounted car. He was found to have not acted corruptly.

BlackRock looks to royalties to revive mining fund

The £1 billion BlackRock World Mining Trust has proposed that its ability to invest in mining royalties be increased in an attempt to boost its performance.

The fund has generated negative total returns over one, three and five-year timeframes amid a slump in commodity prices, albeit that it has fared relatively better than its peer group.

In an effort to turn its fortunes around, the fund is seeking permission from its shareholders to invest more of its portfolio in royalty deals.

Under such arrangements, the fund provides financing for a mining project in return for a cut of that project’s future revenues from the operator.

This means the fund is not exposed to any volatility in the operator’s share price, as would be the case in a standard equity investment. It equally insulates the fund from cost pressures on the mining company or any disastrous acquisitions it might make, although it is still exposed to fluctuations in commodity prices.

BlackRock also views royalty contracts as a way to enhance the income generated by the fund, which can in turn be distributed to shareholders.

The World Mining Trust entered into such a transaction in July 2012, whereby it took 2 per cent of the revenues from an iron ore mine run by London Mining (LON:LOND) in Sierra Leone.

Now the fund is looking for explicit authorisation from its shareholders to devote up to 20 per cent of its gross assets to unquoted investments, which could encompass royalties. Currently it is limited to a maximum allocation of 10 per cent, of which it is using 8.76 per cent, to such instruments.

BlackRock clarified that although this change would allow it to invest a fifth of its portfolio in derivatives and physical assets, which are also classified as unquoted, it expected to use the quota ‘principally’ for royalties.

The proposal will be put to the fund’s shareholders at a general meeting on Wednesday 21 August 2013. 

Anglo American and BHP Billiton

Anglo American's production from SA in the June quarter underlined foreign investors' fears about the risks to local miners.

It contrasted with a more upbeat report from BHP Billiton, even though some analysts expressed doubts about the wisdom of Billiton's increasing iron ore production into a weak market.

After plunging sharply in April, Billiton's share price has been recovering this month and gained another 800c on the JSE after its production report. At R280, the share is 22% higher than a year ago, despite generally weak conditions for commodities markets.

Anglo's share price, which has shed 21% over the past year to around R204, was flat after the production report. Andrew Keen, global head of metals & mining at HSBC, said in a report last week entitled "The supercycle ends - again" that at meetings with investors, HSBC had found Anglo was the stock that generated the least serious interest.

"For global and UK generalist investors, mining is a sector they don't feel that they need to own, and Anglo American, with its poor news flow stemming from political risk in SA, challenges in restructuring platinum and delivery of key projects such as Minas-Rio, is a problematic stock compared with its peers. The new CE, Mark Cutifani, has a challenge to reverse this negative momentum."

But Keen said the market was probably underestimating Anglo's ability to deal with its challenges and HSBC believed it would successfully negotiate a reasonable restructuring at Anglo Platinum and control cost increases.

Anglo reported a small dip in output from Kumba Iron Ore in the June quarter compared with the March quarter as Kumba recovers from a strike at Sishen late last year. Though platinum equivalent production from Anglo Platinum rose 2% to 594000oz, it would have been higher if it were not for illegal strikes.

The thermal coal operations in SA were mixed while diamond production from Venetia (about 80km west of Musina) fell 60%. Cailey Barker, analyst at Numis Securities in London, said Anglo's performance was "overall not a great set of results, especially when compared with the better results from the other majors.

"We expect the stock to remain less attractive with exposure to the weaker commodities and ongoing issues in SA, especially upcoming labour negotiations and Eskom power price hikes."

All Billiton's major commodities, with the exception of nickel, which was slightly down, increased output on both a quarterly and annual comparison, though its petroleum division was held back by maintenance and drilling delays in the Gulf of Mexico.

In particular, Billiton reported a strong rise in copper production in the June quarter and its iron ore mines, mainly its interest in Western Australian Iron Ore (WAIO), grew output 19% quarter on quarter to 47,7Mt. Billiton said WAIO's 2014 year sales would rise to 207Mt (100% basis).

Investec Securities' global natural resources team described Billiton's production report as "more positive than negative".

Billiton, Rio Tinto and Anglo American have all taken big bets on iron ore. For Anglo, its biggest expansion project is the Minas-Rio iron ore mine, pipeline and port in Brazil, which will cost about US$8,8bn to produce 26,5Mt/year in the first phase, starting production in the second half of next year. But it is widely speculated that Anglo will mitigate its exposure to the project - currently running over budget and behind schedule - by bringing in a partner.

Last week benchmark iron ore prices rose to a two-month high of $127/t, but Barker said in a note to clients that reports on iron ore were mixed. Some sources suggested restocking was taking place as steel mills were operating at low levels but others suggested bids for cargoes remained low, as steel mills were cautious about the higher prices.

HSBC's Keen said in the group's latest Metals Quarterly that widespread expectations of looming large surpluses in iron ore were unlikely. Iron ore production will adapt to demand and prices will be underpinned by the higher-cost Chinese producers.

Keen forecast prices to average $115/t in the fourth quarter of this year and $123/t for the full year. The bearish view held by some analysts of prices at $80/t-$90/t is unlikely to materialise, Keen said.

UK court throws out Anglo American silicosis case

London’s High Court on Wednesday ruled that it had no jurisdiction over silicosis claims filed against Anglo American South Africa (AASA) on behalf of thousands of former gold mine workers, forcing the ex-miners to turn to South African courts. 

The claimants filed their case in London in September 2011, arguing that AASA's London-based parent company, Anglo American plc, were liable for the former workers’ contraction of silicosis and silicotuberculosis from excessive dust on AASA mines.

But Judge Andrew Smith disagreed. He, however, allowed the claimants to appeal the decision to the UK Court of Appeal.

UK law firm Leigh Day, which represented the former miners, said in a statement that many of the claimants had no option but to discontinue their UK claims and pursue their cases in South Africa.

“The claimants wish to sue in England owing to the possibility of obtaining higher damages and speedier court procedures, and because claimants’ lawyers’ ‘success fees’ are paid by a defendant rather being deducted from claimants’ compensation,” said local attorney Zanele Mbuyisa, who works closely with Leigh Day.

“Most of the claimants intend awaiting the outcome of the UK Court of Appeal decision. However, if they wait for the result of an appeal, and the appeal is ultimately unsuccessful, they might fall foul of a law that imposes a three-year time constraint on starting litigation in South Africa,” she commented.

Following the ruling, Leigh Day said it would, in cooperation with South Africa-based Mbuyisa, shortly begin a rolling process of filing cases against AASA in Johannesburg.

The first 50 claims were expected to be filed within days. 

“Urgent compensation for dying, sick and impoverished silicosis victims is essential,” said Mbuyisa.

The new cases would follow on the heels of the President Steyn miners' test cases against AASA, on which Leigh Day and Mbuyisa had been working in conjunction with the Legal Resources Centre and Legal Aid South Africa since 2003.

A study published in the American Journal of Industrial Medicine in 2008 found a 25% prevalence of silicosis in ex-miners from Lesotho who had been employed as long-term miners on AASA's President Steyn mine.

Ten of the test cases were scheduled for a public arbitration hearing in Johannesburg in May 2014, and would be highly influential in establishing the principles of liability of the gold mining industry.

Leigh Day attorney Richard Meeran added that the UK High Court ruling was a “pyrrhic victory” for Anglo American. “The evidence against the industry is strong and, having been involved in this silicosis litigation intensively from its inception nine years ago, we fully intend to see it through to its conclusion in order to secure justice for the victims,” he said.

An AASA spokesperson told Mining Weekly Online on Thursday that it believed that the UK judge “correctly found that the English court does not have jurisdiction to hear this claim”.

AASA, which is registered in Johannesburg, was the head office company of the Anglo American group until 1998 when the group underwent a restructuring including the establishment of Anglo American plc and London-based headquarters.

Endeavour secures more financing as it moves to lower costs

Dual-listed gold miner Endeavour Mining has moved to lower its operating cost profile, while also enhancing its financial flexibility.

The ASX- and TSX-listed company reported on Thursday that it had increased its revolving corporate loan facility from $200-million to $350-million, with the term extended to five years.

As Endeavour has previously drawn $200-million under the original facility provided, the new facility provided $100-million of additional credit. The remaining $50-million of the facility would be available after the construction of the Agbaou mine, in Côte d'Ivoire, and could be used to fund expansions and other capital projects.

“We are very pleased with the strong support for our operations and development projects, which we have received from five of the top global mining banks,” said Endeavour CEO Neil Woodyer.

“Even in these volatile gold price and challenging capital markets, we will be able to finance our current construction plans and also take advantage of additional capital projects to improve the cash generation and value of our current operations.”

Endeavour has previously announced that it would cut back on capital spending this year, in response to market volatility.

The miner said in May that a number of cost reductions were being implemented for the remainder of the year, including cutting the full-year exploration budget by A$5-million to A$15-million, reducing its land position by some 50% to lower spending commitments on noncore properties, reducing corporate expenses by A$5-million and selling its noncore rare earths assets.

“In parallel, we have a sharp focus on improving the generation of cash flow and earnings before interest, tax, depreciation and amortisation from our current three mines,” Woodyer said Thursday.

He noted that the Agbaou mine, with its access to grid power and free-dig ore, was positioned to become a strong cash flow generating operation by producing gold at a target of less than $800/oz on an all-in sustaining cash cost basis in 2014.

“The expansion of Tabakoto [in Mali], the completion of Agbaou, our cost reduction programmes and increased owner mining will help us achieve our 2014 planning targets, which include producing over 400 000 oz, cash costs in the range of $800/oz, and all-in sustaining costs in the range of $1 000/oz,” Woodyer added.

Meanwhile, Endeavour told shareholders that based on the operating results until the end of June, the company had stuck to its full 2013 production guidance of between 310 000 oz and 345 000 oz.

During the six months to June, Endeavour produced 149 075 oz of gold, while second-half production was forecast to be between 165 000 oz and 180 000 oz. The increased gold production during the second half of the year would be sourced from the expanded mill at the Tabakoto mine, as well as improved processed grade at Nzema, in Ghana.

The iron ore slice of the $1 trillion Afghanistan resource pie

A public-private Indian consortium, AFISCO, 16% of which is owned by a single Indian family, will soon begin operations at what is to be the world's second largest iron ore mine in Hajigak, Bamyan Province, Afghanistan.

The consortium won the concession from Hamid Karzai's government in 2011.

Afghanistan government sources claim that the iron ore reserves amount to roughly 1.2 billion tonnes. The original bid also proposed erection of a 6.2 million tonnes per annum (MTPA) Afghan steel plant, 800MW power plant and "over 200 kms of rail, road and transmission line network for the mine and steel project."

According to US and Afghan estimates, the country is sitting on mineral deposits worth roughly $1 trillion.

In addition to iron ore, major deposits include copper, gold, uranium and precious stones such as emeralds.

China's coal-fired economy has a thirst for power

At first glance, Daliuta in northern China appears to have a river running through it. But a closer look reveals the stretch of water in the town centre is a pond, dammed at both ends. Beyond the barriers, the Wulanmulun's bed is dry.

Daliuta in Shaanxi province sits on top of the world's biggest underground coal mine, which requires millions of litres of water a day for extracting, washing and processing the fuel. The town is the epicentre of a looming collision between the mainland's increasingly scarce supplies of water and its plan to power economic growth with coal.

"Water shortages will severely limit thermal power capacity additions," said Charles Yonts, head of sustainable research at brokerage CLSA Asia-Pacific Markets in Hong Kong. "You can't reconcile targets for coal production in, say, Shanxi province and Inner Mongolia with their water targets."

Coal industries and power stations use as much as 17 per cent of the mainland's water, and almost all of the collieries are in the vast energy basin in the north that is also one of the country's driest regions. By 2020 the government plans to boost coal-fired power by twice the total generating capacity of India.

About half of the mainland's rivers have dried up since 1990 and those that remain are mostly contaminated. Without enough water, coal cannot be mined, new power stations cannot run and the economy cannot grow. At least 80 per cent of the mainland's coal comes from regions where the UN says water supplies are either "stressed" or in "absolute scarcity".

The mainland has about 1,730 cubic metres of fresh water per person, close to the 1,700-cubic-metre-level the UN deems "stressed". The situation is worse in the north, where half of China's people, most of its coal and only 20 per cent of its water are located.

Shanxi - the nation's biggest coal base, accounting for about 28 per cent of production - has per capita water resources of 347 cubic metres, less than the Middle Eastern nation of Oman. Inner Mongolia and Shaanxi, which together contribute 40 per cent of coal output, have less than 1,700 cubic metres per person.

A government plan to boost the coal industry and build more power plants near mines will lift industrial demand for water in Inner Mongolia by 141 per cent by 2015 from 2010, causing aquifers to dry up and deserts to expand, according to Greenpeace and the Chinese Academy of Sciences' Institute of Geographical Sciences and Natural Resources.

About 28,000 rivers have vanished since 1990, according to the Ministry of Water Resources and the National Bureau of Statistics.

"After five years there won't be enough water in Ordos in Inner Mongolia," said Sun Qingwei, director of the climate and energy campaign at Greenpeace in Beijing. "The mines are stealing ground water from agriculture. Local governments want their economies to boom."

Wells drilled near Haolebaoji near Ordos by Shenhua Group, the world's biggest coal producer, have caused groundwater levels to drop to a depth of as much as 100 metres, drying out the region's artesian wells, Greenpeace said on Tuesday.

China is responding to the crisis with harsher limits on water usage and a new tariff structure that allows for steep price gains. It plans to spend four trillion yuan (HK$5.1 trillion) by 2020 to boost water infrastructure.

Caps introduced in January limit the annual increase of water used by the four biggest coal-producing regions to 2.9 per cent annually until 2015, while their combined coal output is set to increase almost 5 per cent a year.

Debra Tan, director at research firm China Water Risk in Hong Kong, said stricter controls would raise the risk of investment in water-intensive industries and heavy polluters including coal, metals and paper production, especially in the north.

Scott Moore, a research fellow at the Harvard Kennedy School's sustainability science programme in Cambridge, Massachusetts, said: "In an absolute worst case you'd see a large-scale shift in economic activity and population further south for lack of water, and manufacturing increasingly moving abroad."

To alleviate the shortage in the north, the central government in 2002 approved the 500 billion yuan South-North Water Diversion Project, the largest irrigation project in the world. The plan is to carry 44.8 billion cubic metres of water a year from the Yangtze River along three routes.

But even this massive programme may not be enough. The Asian Development Bank said in a report last year that the mainland's demand for water may exceed supply by as much as 200 billion cubic metres by 2030, according to some estimates, unless "major capital investments to strengthen water supplies are made beyond those presently planned".