Coal news and updates

China singling out Australian coal is a sign of their influence on global energy markets

Energy markets are a hot topic now with gas prices going vertical in Europe and coal prices breaking all-time highs. There have been numerous hypotheses lodged online blaming some very plausible causes including reduced gas storage and nuclear and some where the causal link appears to be missing, like renewables. Renewables are variable, but without them Europe would undoubtedly need more gas and be in more strife.

Over the last year I’ve been working on a project with Australian National University on China’s coal markets and logistics and how domestic drivers lead to massive changes in imports. This focus has perhaps given me a different lens to look through recent energy market developments.

China’s energy markets and global markets, especially for LNG and pipeline gas, have become increasingly integrated over the last five years.

For gas producers this has been a boon – a major new customer with strong growth while European demand has broadly been declining to flat over the period. It also means that what happens in China’s domestic energy markets does not often stay in China’s energy markets but is propagated throughout the world. When China has shortages or surpluses of gas, coal or electricity they spread rapidly across the world as China is a major and volatile importer of these commodities.

By mid to late 2020, coal was looking to be in serious trouble. Chinese inventories were high and shipping data showed that much of the supply of coal to southern China was now coming from Northern China ports leaving little room for thermal coal imports and not just from Australia which was singled out for special treatment. Then something strange happened.

From early 2021 China started to draw its coal inventories down hard and deliveries from northern ports to southern ports started to drop. This might not be a big deal, but China’s power demand was flying at the time with electricity consumption up ~14% year-over-year in April-June and steel output up 21%. Coal stocks started to decline rapidly.