As Europe and America consume less coal, China gains greater influence over coal industry
In its medium-term coal market report for 2016, IEA reports that global coal demand growth has stalled after more than a decade of 4 percent annual growth, with demand in 2016 to be below 2013 levels. Consumption decreased for the first time in 2015 as declines in the U.S. and China were not offset by growth elsewhere.
China saw coal use decline in all major consuming sectors; electricity, steel, and cement. Coal generation dropped due to sluggish 0.5 percent electricity demand growth and the country’s diversification policy, which led to growth in hydro, nuclear, wind, solar, and natural gas power generation growth.
Coal use in the U.S. plummeted due to low natural gas prices and coal plant retirements pushed by the Mercury Air Toxics Standards (MATS). Overall U.S. coal consumption dropped 15 percent, the largest annual decline ever.
Plenty of coal in Asia’s stocking
Even as coal declines in Europe and America, the shift to the East is accelerating. Coal is the preferred option to increase power generation in growing economics that face electricity shortages. Solid consumption and growth is expected for India, Vietnam, and Indonesia, although China will continue to be the largest coal consumer by far over the period.
Coal production and trade has been traditionally believed to be less affected by geopolitical issues due to easy logistics and widely distributed reserves. As coal consumption shifts to Asia, however, IEA has raised the possibility that coal production, demand, trade, technology, and finance might disappear from Europe and America and become increasingly concentrated in Asia.
IEA believes this might make coal consumption more controversial, complicating negotiations on mitigation of C02 emissions.
Despite increasing restrictions from many European and North American banks and institutions on coal financing, the agency reports investments in coal power generation have been stable over the past few years.
China will move the coal world with 50 percent of global demand, 45 percent of production and 10 percent of seaborne trade
Although IEA sees a brief dip in Chinese electricity and coal demand over the next few years, the country will account for 50 percent of global coal demand, 45 percent of coal production, and 10 percent of seaborne trade over the next decade.
Measures taken by the government this year to curb oversupply caused coal prices to spike. Reacting quickly, the Chinese government softened the policy shortly after implementing it to ease volatility. Rapid production cuts and price increases produced a spike in imports to China.
In short, Chinese macroeconomic development and policies have a huge influence on coal supply and demand worldwide.
Mining capex is currently very low, very few projects are moving ahead, overcapacity remains in China, and current strong prices are more linked to Chinese policies to cut oversupply rather than sustained strong demand.