COLUMN-China moves to cut coal use look bearish for imports, may not be – by Clyde Russell (Reuters India – January 17, 2014)

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Clyde Russell is a Reuters market analyst. The views expressed are his own.

LAUNCESTON, Australia, Jan 17 (Reuters) – Coal miners in Australia and Indonesia could be forgiven for feeling depressed, given the plethora of news coming out from top buyer China on how it intends to cut demand for the dirty fuel.

In the past few days China’s National Energy Administration has set a target of lowering coal’s share of energy use to below 65 percent in 2014 from last year’s 65.7 percent, three years ahead of initial plans. Beijing’s mayor has urged an “all-out effort” to tackle air pollution, pledging to cut coal use by 2.5 million tonnes a year in his polluted city.

In neighbouring Hebei province, the country’s biggest steel-making region, authorities have said they will block new projects, punish officials in areas of high pollution, and cut steel output and coal use by 15 million tonnes each this year.

This all sounds bearish for coal, and the gloom of miners that export to China could be deepened by signs that domestic supply in the biggest producer and user of the fuel is rising.

Industry figures suggest China’s coal output rose about a percent last year to 3.7 billion tonnes, up from 3.66 billion tonnes in 2012, but its five-year plan for 2010-2015 calls for adding 800 million tonnes.

About 100 million tonnes of that additional capacity is expected to come onstream this year.

China also plans to raise annual coal rail capacity nearly a third to 3 billion tonnes by 2020 and build 11 large-scale storage and distribution bases to aid logistics.

Lack of transport from coal-mining regions in the north and west of China to major consumers in the industrial south and east has previously served to turn the nation into the world’s biggest coal importer.

For Asia-Pacific coal miners focused on growing their business by meeting rising Chinese energy use, it seems like a triple-whammy of lower demand growth, higher domestic supplies and improved infrastructure.

But there are always a few “buts” to consider.

EXPENSIVE RENEWABLES, ECONOMIC GROWTH

The first is whether China can actually achieve the planned reduction in coal’s share of energy generation.

While some hydropower capacity can still be accessed, this source of power generation is nearly tapped out. That means other renewables such as wind and solar will have to join with nuclear and natural gas to displace coal power.

For the rest of this column, click here: http://in.reuters.com/article/2014/01/17/column-russell-china-coal-idINL3N0KR11Y20140117

 

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