Coaltrans blog
Year round comment on the global coal markets, its participants and future

Prognosis for the future of the Chinese coal industry 

Published July 2016 by Dr. Lars Schernikau, HMS Bergbau Group


Lars Schernikau from HMS Bergbau Group is the Coaltrans guest blogger for the July 2016 edition

If I could forecast what will happen in China and how it impacts coal imports and exports then I could forecast reliably how the global seaborne coal market will develop. Unfortunately, I cannot. With only single digit coal import dependency, the pendulum can swing either way very quickly. We have seen now both, how China reduced imports and took out about 10% or a 100 Mt of coal demand within a few months during 2014/2015 and how China could do just the opposite during 2009-13 when the giant appeared insatiable prompting large producers to pump large sums of money into increasing coal production capacity.  Looking at the big picture it is clear that the new normal has become a reality: slower growth with continued volatility and a lower level of net steam coal imports between 100 to 150 Mt annually. Some Chinese local producers may ramp up coal exports again but this is from a small basis and only for selected qualities to nearby markets such as Japan and Korea (see Shenhua announcement end of March 2016 that they possibly ramp up exports from 1 Mt in 2015 to 10 Mt in 2016).


The industrial overcapacity in China has got much worse since the last crisis in 2008/2009. Beijing is struggling to implement reforms and overcome the resistance of growth-obsessed local governments, some European business lobby said. The Chinese central government has identified overcapacity and the closure of debt-ridden firms as one of its key policy priorities for 2016. Plans are in place to shut 100 to 150 mt of low-end steel capacity and 500 mt of coal production, this is huge. The plans were the latest in a long line of measures aimed at tackling capacity gluts in several major industries. At the same time Beijing needs to force failing enterprises out of the market and resolve debt and unemployment, a mind-boggling task.


I predict that China will continue to remain a net importer of coal. At the same time, it will restart exports. Needless to say, nuclear and solar will gain. Just before the Paris climate talks in December 2015, China committed over US $6.600 billion to be spent during 2020 and 2030 on meeting its agreed climate mitigation targets. I forecast that Chinese energy demand will continue growing slower but not peak for at least 1-2 decades. The share of coal will reduce but remain far above world average and so will any new power capacity that will be added after the realignment in China. As a result China will keep pulling up the world average of coal fired power. Current coal fired overcapacity in China will have to be absorbed, so we are likely to see a couple of years of substantial reduction in new builds which prompts Chinese power plant construction firms to compete even more aggressively overseas (i.e. in Indonesia, Malaysia, India, Vietnam, etc). That China will continue to burn large amounts of coal for decades to come is also exemplified by the fact that as per end 2015 China had issued environmental approvals for an additional 155 coal-fired power stations with a total installed capacity of 123 GW, though much of it will now be delayed. This amount of newly to be installed capacity is more than today’s coal-fired capacity of Germany (No. 4 in the world) and Russia (No. 5 in the world) combined. 


Internally in China one has to differentiate between the Southeastern coastal region and the West and Central regions. The electricity generation in the West and Central regions will almost triple from 3.500 TWh in 2015 to 9.600 TWh in 2035 (Wood Mackenzie 2015 and Figure V 12).  Electricity will be transported to the East and Coastal regions via an often referred to as New Silk Road or commodity superhighway. It is also expected that shale gas projects will ramp up in the West of China continuing to fuel the East and Coastal regions of China.


I would like to end this article on China with an optimistic word from CRU 2014 which states in my eyes correctly, that there is room for coal imports to increase when cost inflation kicks in. Alex Tonks of CRU concludes “The majority of incremental economic coal supply is moving away from major demand centers, resulting in increasing traded coal volumes in seaborne markets”. Also the World Energy Outlook 2015 Special Report, the IEA says: “China is, and is projected to remain, the world’s largest consumer and producer of coal through to 2030”. While China’s coal demand growth is expected to plateau in the 2020s, it shows “no notable sign of decline by 2030”.




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