Coal news and updates

Wu Lixin is the deputy director of the Coal Strategic Planning Research Institute in Beijing. It is a new department of the China Coal Research Institute, which has provided advice to the country’s coal sector and policymakers since 1959.

 

China’s policy intervention in overhauling the coal industry unexpectedly jolted the domestic coal market as we approached the end of 2016. The rally in coal prices over many months has led some to question if the world’s biggest carbon polluter is still on track to decarbonise its economy.

 

With smaller coal mines rushing to reopen and boost production, 12 coal mine accidents have been reported since late October alone, seemingly adding strength to questions of whether Chinese coal production is staging a comeback after a sluggish period.

 

Coal resurgence?

Certain factors point to an upturn in coal demand. Central government stimulus to prop up the economy – particularly through infrastructure construction including the real estate sector – beefed-up coal demand from downstream industries, such as steel and cement, during the second half of 2016. Unusual weather patterns – a hotter summer and colder winter – also contributed to increased demand. It’s important, however, to put these short-term factors in a wider context.

 

Coal will still dominate energy consumption in China over the short- and mid-term. This doesn’t mean, however, that we are witnessing any sustained resurgence in coal. Changes in the country’s growth model are significantly slowing its appetite for coal. Meanwhile, concerns about pollution are continuing to boost high-efficiency, cleaner-burning technologies; all of which continue to be parts of China’s strategy to decarbonise its economy. More broadly, the global trend of increasing adoption of renewable energy continues apace, with China at the forefront of this shift.

 

Recent analysis by my institute shows that China’s coal consumption for 2016 stalled or even fell, continuing the downward trend of the past two years. Between January and November, China’s coal use was down 1.6% at 3.49bn tons, compared to the same period in the previous year. This follows a 3.7% decline in 2015 and a 2.9% drop in 2014.

 

Likewise, we aren’t seeing a substantial increase in demand for coal driving the end-of-year price rise. In essence, it is a supply gap created by government policy intervention to reduce over-capacity. The measures drastically reduced supply in a short period of time and were exacerbated by tightening regulations on road use, hindering transportation of coal to end-users.

 

Government measures to reduce coal production in Chinese mines by 54 days – down from 330 to 276 days a year – and moves to force miners to comply with production limits, led to a demand-supply gap of more than 200m tons. This is much higher than the market could handle, without feeding through in the form of significant price rises.

SOurce: Carbonbrief