Last week we wrote in MetalMiner about electricity demand in China and how rising power production was a strong indicator that growth in industrial production was still robust. A number of recent reports in Reuters looking at the coal market and in particular, China’s production, consumption and imports support the power generation numbers showing strong growth. China’s coal imports in 2009 jumped by 212% from a year before to 125.8 million tons, prompting some analysts and exporters to forecast imports could easily grow some 30% this year to reach 170 million tons, the article said. That would make China the largest producer, largest consumer and the largest importer of coal in the world, overtaking Japan’s status as the world’s largest coal buyer.
Import figures although impressive are a shadow of production and consumption. Some doubt surrounds the latest exact numbers because unusually the National Bureau of Statistics has not released April numbers but estimates by Wu Chenghou, a consultant and former deputy director of the China Coal Transportation and Distribution Association, speaking at a conference in Shanghai said that China’s output of raw coal in the first four months of this year totaled 1.009 billion tons, up 27.7% from the same months of 2009. Without official NBS figures that number is possibly out by a few million tons but it still puts annual production at some 3bn tons. Last year, China moved from being a net exporter to a net importer as a combination of surging demand and mine safety fears restricted output. China has contracted heavily for supplies from Indonesia, the world’s largest coal exporter for the second half of 2010, creating a tight spot market for thermal coal in Asia.
BHP and Japanese steelmakers are in the process of concluding Q3 coking coal pricing and appear to be agreeing on a further 12.5% increase for coking coal to about $225 per ton, representing a 75% rise from a year earlier. As economic expansion continues in India, China and other Asian markets demands on coal supplies will only rise. Producers are scrambling to invest in expanding production but increasingly supplies in Australia, Indonesia, South Africa, Columbia, Russia and even the US will come under pressure. The question is will it continue at this pace? The answer is no probably not. Part of China’s surging demand has been because of reduced hydro-electric power production due to droughts and a reduction in domestic coal production following mine fatalities. This has resulted in a tightening of safety standards and the closure of many small mines. The rise in coking coal demand has been driven by surging steel production a trend the authorities are trying hard to restrain and early signs of a cooling steel market may apply its own restraint in the short term. So it is possible coking coal volumes and prices could level off in the second half of the year. Thermal coal imports will depend more on domestic Chinese coal production. Electricity demand as we said last week is likely to rise into the peak summer season but then drop going into the fall. Much of this trend will have been priced into current forward buys but the reality is even if China’s GDP growth were to cool from the current 11%+ to a more sustainable 8-9% later this year pressure is likely to remain on the thermal coal market. Meanwhile the rest of Asia is growing strongly again and will maintain their own demands on the market. Coal looks like a good commodity to have been long in this year.