The Chinese coal mining industry has been hit by slowing coal consumption growth and simultaneously, a flood of cheaper imported coal. To stem the decline in profits, Chinese coal producers are pursuing a variety of strategies, including considering investing in renewable energy, auctioning Australian coal export capacity, and pushing new coal import standards.
Following the record 289 million tons of coal imported in 2012, China imported 110 million tons of coal in the first four months of 2013, a 25.6 percent rise compared to the same period of 2012. Cheaper imported coal has hit domestic coal prices, and this month, China’s benchmark thermal coal price fell to 611 yuan per ton ($98.69), a three year low.
The sluggish economy has dampened demand for coal; China’s thermal power generation growth rate slowed to 0.6 percent in 2012 according to figures from the National Bureau of Statistics. Weak demand can also be seen in downstream industry sectors as the iron, steel and cement output growth rates are down.
With coal demand and prices falling, China’s coal industry has been losing money. According to the statistics from China Coal Economic Research Institute, 39 listed coal company experienced total net profits decline to five year lows.
China’s coal output in the first quarter of 2013 dropped 1 percent year-on-year to 830 million tons, while the consumption growth rate slowed to 1.5 percent, according to data from the China Coal Industry Association reported in China coal news.
One of the ways the Chinese coal industry is responding to this weakening growth and cheap imports is quite interesting. The largest coal mining company in China, Shenhua Energy, is considering a joint investment project with Hydro Tasmania to build wind farms in Australia, supporting the Australian government’s program to generate 20 percent of its power from renewable energy by 2020.
The Chinese coal industry’s response also shows the potential for impacts to coal producers in the countries exporting to China. Yancoal Australia, majority owned by China’s Yanzhou Coal, is among the companies in Australia “putting excess port capacity on the block, signaling a lack of confidence that coal prices will rebound soon” the Wall Street Journal reports. Glencore Xstrata, an Australian coal producer, is also seeking to auction part of its stake in a coal export terminal set to open in 2015; that follows the company’s recent announcement that it would cancel another planned export terminal.
Another measure that may be designed in part to protect Chinese coal producers are proposed import standards that would ban low quality imported coal. That has Indonesian coal producers worried about “catastrophic” reductions in prices – a reminder of the risks of resource extraction based economies in a global market.
Meanwhile, assessments from Deutsche Bank and Goldmans Sachs of reduced Chinese demand and the flooded global coal market mean that China’s hunger for American coal are in doubt, McClatchy reports. When questioned about those reports and the implications for US coal exports, a spokesman for the National Mining Association, a lobby group for US coal companies like Arch and Peabody, tried to put on a positive spin; “With any product, but energy in particular, you’ll see some peaks and valleys.”
Perhaps it’s time for US coal companies look at Shenhua Energy, and consider investing in renewable energy.