Recent increases in thermal coal imports in China may appear promising, but a new report from BMI Research states that Chinese coal consumption has already peaked. BMI forecast that Chinese coal imports will continue to grow strongly for only a few months; after that, there will be a gradual decline in coal imports from 2017 to 2010, due primarily to a poor outlook for coal demand within China.
Chinese imports of thermal coal grew by 7.5% in May 2016 and 13.1% in June 2016 – in dramatic contrast to 2015, which saw Chinese coal imports decline by 34.8%. However, BMI predicts that this growth trend will not last long.
First, BMI cites three reasons why it believes that domestic demand for coal in China will not increase:
Second, BMI contends that the recent increase in Chinese coal imports was caused by supply and demand factors that will not continue.
On the supply side, China’s coal production was severely cut by consolidations in 2016 because domestic prices were low, and the government wanted to curb overcapacity. As a result, there was a pronounced reduction in coal mining in 2016, leading to increased demand for imports. China is still cutting the coal sector, but it is expected that this will be the most pronounced in 2016, and that the sector will actually be growing by 2018 onwards. This is because by then, sufficient cuts will have been made. Fixed costs per unit of input will have been reduced because of the closure of redundant mines, increasing the profitability of the remaining mines.
On the demand side, domestic demand for coal was fuelled by recent Chinese government economic stimulus measures to increase industrial activity. But these stimulus measures will cease by 2017.
In sum, China imported 108m tonnes of thermal coal in 2015. This was a 33.1% decline from 2014. BMI predicts that imports should be about the same in 2016, and then will decline gradually in 2017 – 2020. This will be due to weak consumption growth: coal consumption will be 2.5% lower in 2025 than it was at the 2013 peak (when a peak 192m tonnes of coal was imported).
On the other hand, if there is a much more aggressive consolidation of the coal sector, domestic coal prices might go up; in that case, China might increase coal imports.
Everything in Chinese demand depends on the master plan.
And the master plan is to make a transformation from Export oriented economy to Consumer based economy. Every plan of every sector begins with this master plan.
1. Based on this transformation, heavy industry will decline reducing metals, power requirement.
2. Based on the decline in power requirements, they will plan coal strategy. This will be done by encouraging renewable power, closing down old, in-efficient, urban power plants. As the coal plants already planned will keep the graph on high but eventually it will taper off. This will be worked out by planners and they fine tune the coal requirements. They will close old, dangerous, labor intensive, high ash content coal mines and improve by importing high calory low ash coal. As the closure of coal power plants picks up pace, they reduce imports.
This is what the article is all about. But as you can see, the decline is based on long term plan and will take some time. It will not be reflected this year or next year. In near term, as they close more domestic mines, the imports may go up but they will taper off and start declining.
I think its time the coal exporters look to India as an alternative destination. At this moment India is self sufficient but the same demands of clean power heat up, they too will close high ash mines and import high calory, low ash imports.
3. Coking coal also follows same master plan. As heavy industry tapers off, it reduces demand for coking coal. But as thermal coal, the already planned and recently commissioned new steel plants still require lots of coking coal. Imports of such may go up in short term but will taper off soon and decline. Once again it will not be this year or next year.
Once again the exporters should consider India in their long term plans as the demand in India will go up in next 20 years and India dont have domestic coking coal mines.