A big change is apparently taking place in China’s coal production balance. The chart below is a little dated now, but you can see how China’s demand for coal began to catch up with domestic production about 2008:
Coal imports have been in the news this week as prices for thermal coal hit $100/tonne and China began importing from new sources. This could ultimately have implications for China’s climate change efforts.
More than half of China’s coal imports are sourced from Australia, Indonesia and Vietnam, with Russia, Mongolia, and Canada the main second-tier suppliers.
This month, for the first time, it is taking shipments from Colombia later this month. Two shipments are organised for later in January with transit costs of $33 and $34.50 per tonne respectively, according to sources speaking to Argus.
But the country has the world’s third-biggest reserves of coal – is it going to become a net importer for good?
There are certainly some temporary factors affecting supply from China’s traditional suppliers such as Australia and Indonesia, and Chinese demand is also being boosted by cold weather, and stockpiling ahead of the Chinese new year. On a more medium-term outlook, the country’s coal mines are undergoing a big consolidation that the country hopes will ultimately boost production. Despite this, several analysts and industry figures that my colleague Javier Blas spoke to believe China is becoming a net importer, and a growing one, for good:
Brendan Fitzpatrick, mining analyst at Deutsche Bank in Sydney, says China’s shift from exporter to importer was the “key change” in the seaborne market. Before it, miners were braced for a protracted period of low prices because of lacklustre demand in Japan, South Korea and Taiwan, the traditional buyers.
Looking forward, most analysts, traders and executives believe China will continue to buy significant quantities of thermal coal overseas.
Clinton Dines, former chief executive of BHP Billiton China, says that there might be some minor wobbles, but concludes: “China is going to be a coal importer of some scale from now on.”
Richard Navarre, president of US-based Peabody Energy, which describes itself as the world’s largest private-sector coal company, agrees with the view. “We think that China is going to continue as a net importer of coal,” he says, adding that consumption in the Asia-Pacific basin “is continuing to strengthen”.
BP’s Statistical Review data tells a slightly different story – there have been a few shortfalls in the early 2000s but these were compensated for in the past few years.
But the preliminary import data for 2009 suggests this could be changing rapidly – in the 11 months to November, Chinese coal imports were up almost 500 per cent, according to Dow Jones data. November alone was almost six times higher than the previous year.
So there’s a good case for China switching for the long-term. However…
Why coal might start looking less attractive
If China clearly loves coal enough to keep on importing it at high prices, what’s the problem?
In short: expensive, imported coal is less attractive than cheap, local coal – especially for China.
When analysing China’s attitudes to climate change negotiations – as many have been doing in the past few weeks since Copenhagen – the importance of the country’s desire to use up its coal reserves is often highlighted as a key reason for its aversion to binding emissions targets. After all, coal is cheap and China has a lot of it.
At the same time, a sometimes-forgotten fact about China’s energy policy is that it is extremely conscious of energy security. This is what some analysts believe is driving the country’s push into electric cars. Of course, trading with relatively nearby neighbours such as Australia and Indonesia might be more palatable than Middle Eastern oil exporters. Imports today are only a tiny fraction of its overall consumption. But if China’s own production continues to fall so short of its growing demand that it must seek out new suppliers, it’s conceivable that China might be looking closely at its long-term coal dependence.