beyondbrics

China’s monster traffic jam tells us something clear about transport: Chinese people are buying lots of cars and the roads aren’t ready for them. In August alone the Chinese snapped up over 1.2m new vehicles.

But the jam also tells another story – of China’s growing appetite for coal, specifically steam coal used in power generation which China has in rich supply.

It’s small wonder there’s a jam. The G110 expressway that runs from the coal producing areas of Inner Mongolia to Beijing and on to other major cities on the eastern seaboard is designed to carry a maximum of 6,000 trucks a day.

According to a report from Deutsche Bank’s Daniel Brebner the road currently has to cope with 80,000. Reuters reports that 10,000 of those stuck in the jam are carrying coal.

It should come as no surprise that Morgan Stanley has coal as its number one commodity pick – when it comes to China proxy investments. China’s coal imports have rocketed in recent years – up from 45 million tonnes in 2007 to an estimated 117m this year, and 151m next year (thus overtaking Japan on another metric), according to Brebner.

Before 2007 it was a net exporter.

So – the price of coal should rocket, right? Well that depends on one big question: how much coal can China supply itself with?

China’s demand for coal is clearly soaring. But as Kevin Norrish at BarCap told beyondbrics, the coal used in energy production – steam or thermal coal – is plentiful within China. The only problem, he says, is that the infrastructure needed to transport it from the western provinces to the east coast is still underdeveloped.

Once new rail networks and highways are up and running, China could well satisfy a lot of its own demand, while a growing desire to improve air quality could also weigh on longer-term coal use.

The monster jam doesn’t tell us whether or not China can meet its own needs in the future. But it does perhaps show why new demand is being met with imported supplies.

Deutsche Bank may be predicting a 27 per cent rise in Chinese coal imports in 2010, and a 29 per cent rise next year. But for 2012 it only sees a 2 per cent increase. In 2013 the new rail link between the coal mining area and the major port that carries coal south to Guangdong is set for completion.

The debate over whether coal is the ultimate commodity proxy for China will keep rumbling on until then.

Related reading:
Jam tomorrow – Lex
China’s monster traffic jam: a sign of things to come – beyondbrics
Deal of the day: Hong Kong toy manufacturer buys Chinese coal miner – beyondbrics
Chinese drivers blame economy for gridlock – FT
Investors take indirect route into China – FT