China’s reduced coal use ends golden decade for coal
December 17, 2013 Category Alternative energy, Environment
China’s drive to reduce coal consumption is having an impact on investments in the coal industry worldwide. “China is kicking its coal addiction,” said Chen Yafei, Vice Director at the China Coal Research Institute. “With slower economic growth and a big push towards gas and renewables, the golden decade for coal is over.” China’s coal imports grew 17% in the first 10 months of the year, down nearly half from the 30% in the same period last year. With weak demand and high domestic output, inventories have been stuck at record-high levels of 300 million tons most of this year. China’s massive jump in coal use – to 3.8 billion tons last year from 2.5 billion tons in 2006 – drove prices of benchmark Asian thermal coal to an average of USD121 a ton in 2011 from less than USD50 five years earlier. But a raft of mine expansions during the boom years and weak demand caused by the global slowdown in economic growth pushed prices to a three-year low near USD80 a ton in October last year, and they have stayed below USD100 since. Goldman Sachs expects seaborne coal trade to grow at just 1% until 2017, compared with 7% from 2007-12. Miners bullish on demand are planning projects in areas that need significant infrastructure investment, such as the Galilee basin in Australia and the Sumatra region in Indonesia, but they need high prices for the projects to make sense. India’s GVK Power & Infrastructure and Adani Enterprises are among those spending billions of dollars on new mines in the remote Galilee Basin. In Mozambique massive spending is needed on railways and ports to allow companies like Rio Tinto and Vale to make the most of potential reserves. “The prospect of weaker demand growth and prices at near marginal production costs suggest that most thermal coal growth projects will struggle to earn a positive return for their owners,” Goldman Sachs said in a report. Beijing is mulling proposals to scrap a 10% coal export tariff, a move that could easily cause shipments to jump fourfold as Chinese coal becomes more competitive. Plans by the Ministry of Railways (MOR) to double the volume of coal carried on dedicated railroads to 2.4 billion tons by 2015 will cut production costs, as will an ongoing mine consolidation, the South China Morning Post reports.
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