China's homegrown coal to lose favor
China's domestically made coal may lose its competitive advantage to imported coal by 2015, prompting Chinese companies to step up purchases of foreign coal, according to a report by Wood Mackenzie, a research and consulting services provider for the global energy and mining industries.
Coastal municipalities and provinces, including Shanghai, Jiangsu, Zhejiang, Guangdong, Fujian and Hainan, will probably buy 90% of their coal needs from overseas four years from now as the Chinese currency's rate against the dollar is expected to surge to 5.2, up from currently 6.3.
In 2011, as many as 517 million tons of coal were freighted from the hinterland to the six regions mentioned above, which were responsible for half of China's economic output, according to Wood Mackenzie.
Chinese coal and imported coal prices are almost the same now, but coal production costs are rising faster in China than anywhere else in the world as the Chinese government pushes ahead with industry consolidation and requires higher safety standards and employee pays, Wood Mackenzie noted. The labor cost of coal mining grew 13% in 2011 in China, while Australia's was up 8%, added Wood Mackenzie.
Chinese coalminers' active operations overseas will also contribute to the gradually cheaper coal imports for the nation. Yanzhou Coal Mining Co (NYSE: YZC, SHA: 600188, HKG: 1171), China's fourth biggest coal producer, spent $3.5 billion taking over Australia's Felix Resources Ltd in 2009, and bid last month for Gloucester Coal Ltd, also based in Australia, for $2 billion.
China imported 160 million tons of coal in the first 11 months of 2011, customs figures show.