China Coal & Power Outlook

Transcription

1 banchero costa China Coal & Power Outlook (covering coal, lignite, and their demand from power sector) July 2018 bancosta blue studies volume China 2018/#11 banchero costa research ; research@bancosta.com Jul 2018 China Coal & Power Outlook 1

2 Index 1. Coal Demand page 3 2. Coal Supply page Coal Imports page Final Words page 39 Jul 2018 China Coal & Power Outlook 2

3 Coal Demand (power generation and consumption) Jul 2018 China Coal & Power Outlook 3

4 China the main coal consumer in the world China is the world s largest consumer of coal, accounting for around half of global demand. By far the largest source of domestic demand is power generation, which accounts for around half of coal consumption in the country, followed by the iron and steel industry, the cement industry and the chemical industry. Move towards clean energy to continue chipping away at coal dependency in long term After many years of double digit growth, which took coal consumption from 1.41 billion tonnes in 2000 to 4.24 billion tonnes in 2013, coal consumption declined over This was in spite of continued increases in total energy consumption and overall electricity generation. Such declines were partially due to the ongoing slowdown in the country s economy, but most importantly due to the ongoing restructuring of the economy, and the shift towards high-efficiency, cleaner burning technologies, as well as renewable energy. Clean energy consumption from hydro, wind, nuclear, and natural gas has been increasing, accounting for 20.8 percent of total energy consumption in 2017, compared to 18 percent in While the decline in China s coal consumption reversed in 2017, growing by 0.4 percent due to a recovery in industrial production and increase in thermal power generation, the growth of clean energy sources continue to gain momentum. In 2017, natural gas and non-fossil fuel energy consumption grew 14.8 percent and 5.7 percent year-on-year respectively. This remains in line with China s 13 th five-year plan, which sets out ambitious targets for their energy mix by 2020 as they seek to replace coal with cleaner fuels to help cut pollution: Coal s share of overall energy consumption should fall below 58 percent by 2020 (from 64 percent in 2015; had already fallen to 60.4 percent in 2017). Gas share is targeted to increase to 10 percent (from 5.9 percent in 2015; reached 7 percent in 2017). Non-fossil energies should increase to 15 percent (from 12 percent in 2015; reached 13.7 percent in 2017). The plan further stated that energy intensity the energy consumption per unit of GDP would be cut by 15 percent from 2015 levels. In 2018, China targets to lower its energy intensity by 4 percent year-on-year, as well as boost gas share of total energy consumption to 7.5 percent in 2018, while pushing down coal consumption to 59 percent. Jul 2018 China Coal & Power Outlook 4

5 Pollution control measures to dampen coal use; winter restrictions to return In early July 2018, China released its pollution action plan, detailing the expansion of pollution-reducing measures to 82 cities across the country. The regions of Beijing, Tianjin, Hebei, Shandong, and Henan will be required to cut coal consumption by 10 percent until 2020, while the Yangtze delta region will have to cut coal use by 5 percent. Special anti-smog measures will also be introduced over autumn and winter again this year, although each of the 82 cities will now be allowed to draw up their own implementation plan. Previously over Oct 2017 Mar 2018, China had curbed traffic and coal use, and also imposed one size fits all restrictions on industries like steel, aluminum and cement through 28 northern cities. The plan also mentioned that gas storage capacity would be raised to ensure sufficient supplies during winter. Over the last winter, Chinese authorities had been forced to relent on a policy banning the use of coal to heat homes as gas supply turned out inadequate. China remains heavily dependent on coal-fired power plants, but gas progressing more rapidly The Chinese power sector is currently still very much dependent on thermal power generation, which includes coal and gas-fired power plants. Thermal power generation accounted for almost three-quarters of China s total power generation in 2017, of which around 90 percent are estimated to be produced by coal-fired power plants. Thermal electricity output in China grew 5.1 percent in 2017 to reach 4,595 TWh, and has continued to increase by a strong 7.8 percent year-on-year to 2,375 TWh in the first half of However, gas power generation has been picking up more strongly, with the China Electricity Council estimating that gas power generation increased 12.8 percent year-on-year in 2016, versus a 1.2 percent growth for coal power generation. Gas power generation also saw double digit growth in 2017, especially as China fights pollution by shifting both industrial and residential users from coal to gas usage. Jul 2018 China Coal & Power Outlook 5

6 Coal power capacity being actively reduced In the near term, coal-fired plants will still account for the majority of power generation in China, given lower costs and entrenched economic interests. However, by 2020, the government aims to cap total coal power capacity at below 1,100 GW, with coal-fired power generated mainly in western provinces and transmitted to the east via ultra-high-voltage lines. In line with these plans, Xinjiang and Inner Mongolia have seen fast growth in thermal power generation over the past 5 years, mostly using coal. Other inland provinces such as Ningxia and Hubei also appear to be increasing thermal power capacity. In 2017, China reported eliminating or suspending 65 GW of coal-fired power capacity, exceeding the national target of 50 GW. The country aims to eliminate or halt a total of 109 GW of coal-fired power capacity by the end of this decade. In 2018, China announced plans to continue shutting inefficient coal-fired power generation units with capacity under 300,000 kw this year. Jul 2018 China Coal & Power Outlook 6

7 5.0 China - Annual Energy Consumption by Resource (source: national statistics bureau ; in billion tonnes of standard coal equivalent) billion tonnes of SCE Coal Petroleum Natural Gas Hydro, Nuclear, Wind Power In 2017, growth in China s energy consumption picked up by 2.9 percent to 4.49 billion tonnes of standard coal equivalent, mainly as usage of crude oil, natural gas, and non-fossil fuels gained momentum. Coal consumption grew by a minimal 0.4 percent. Jul 2018 China Coal & Power Outlook 7

8 7,000 China - Annual Electricity Generation (source: national statistics bureau ; in terawatt-hours) 6,000 5,000 Twh 4,000 3,000 2,000 1, % 7.1% 13.3% 8.7% 4.5% 8.1% 5.7% 2.8% 5.2% 6.2% Annual Electricity Generation Y-o-Y Growth Electricity generation growth in China grew more than 5 percent in In 2017, growth in electricity generation continued at around 6.2 percent, as the economy picked up and generation from natural gas and non-fossil fuels gained momentum. Jul 2018 China Coal & Power Outlook 8

9 650 China - Monthly Electricity Generation - last 5 years (source: national statistics bureau ; in terawatt-hours) TWh / / / / / / / / / / /2018 Monthly Electricity Generation There is naturally significant short term volatility month-on-month due to seasonal and weather-related patterns. After growth in electricity generation slowed in 2015, the positive trend has picked up again over Jul 2018 China Coal & Power Outlook 9

10 650 China - Monthly Electricity Generation - Seasonality (source: national statistics bureau ; in terawatt-hours) TWh Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec In the first half of 2018, electricity output has continued to increase by 8.3 percent year-on-year to 3,184 TWh. After a lull in the beginning of the year with the Lunar New Year celebrations, electricity output tends to rise steadily to its peak during the summer months of July-August. Jul 2018 China Coal & Power Outlook 10

11 China Power Generation by Source (sources: national statistics bureau, as percentage of output) Hydropower 17% Nuclear 4% Wind 4% Other 1% Thermal 74% The Chinese power sector is still very much dependent on thermal power generation, despite significant investment in alternative energy sources, including hydropower, wind and nuclear. Thermal power generation, which includes coal and gas-fired power plants, accounted for around 74 percent of power generation in According to the China Electricity Council, around 90 percent of thermal power generation are produced by coal-fired power plants. Jul 2018 China Coal & Power Outlook 11

12 700 China - Monthly Electricity Generation by Source (source: national statistics bureau ; in terawatt-hours) twh / / / / / / / / / / /2018 Other Hydro Generation Thermal Generation Over the past few years, the expansion of electricity generation from nuclear and renewable energies has had a significant impact in reducing demand for thermal generation. In 2012, hydropower and other non-fossil fuels accounted for a collective 22 percent of electricity generation. However, this has since increased to around 27 percent in Jul 2018 China Coal & Power Outlook 12

13 460 China - Monthly Thermal Power Generation - last 5 years (source: national statistics bureau ; in terawatt-hours) TWh / / / / / / / / / / /2018 Monthly Thermal Electricity Generation After a generally flat growth in as hydro and other alternative power output expanded, thermal power output has since picked up over While gas-fired power plants still form a small percentage of thermal power output, gas power output increased 12.8 percent year-on-year in 2016, versus a 1.2 percent growth for coal power output according to the China Electricity Council. Jul 2018 China Coal & Power Outlook 13

14 450 China - Monthly Thermal Power Generation - Seasonality (source: national statistics bureau ; in terawatt-hours) TWh Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec In the first half of 2018, thermal electricity output has continued to increase by a strong 7.8 percent year-on-year to 2,375 TWh. Thermal electricity output typically has two peaks over the year: during the summer months July-August, and over December-January during the winter months. While gas-fired power plants still form a small percentage of thermal power output, gas power output has been expanding more rapidly than coal in the push for cleaner energy. Jul 2018 China Coal & Power Outlook 14

15 China Thermal Power Generation by Province 2012 v.s Heilongjiang Jilin Heilongjiang Jilin Xinjiang Tibet Liaoning BEIJING Xinjiang Inner Mongolia Hebei Ningxia Shanxi Qinghai Gansu ShaanxiHenan Shandong Jiangsu Sichuan Anhui Shanghai Tibet Hubei Chongqing Zhejiang Jiangxi Guizhou Hunan Total Power Output Fujian > 3,000 TWh Yunnan Guangxi Guangdong 2,000-3,000 TWh Liaoning BEIJING Inner Mongolia Hebei Ningxia Shanxi Qinghai Gansu ShaanxiHenan Shandong Jiangsu Sichuan Hubei Anhui Shanghai Chongqing Zhejiang Jiangxi Guizhou Hunan Fujian Yunnan Guangxi Guangdong Hainan 1,000-2,000 TWh < 1,000 TWh Hainan Over past 5 years, Xinjiang and Inner Mongolia have seen fast growth in thermal power generation, mostly using coal in line with government plans to increase coal-fired generation in inland provinces, and for power to be transmitted to the east via ultra-high-voltage lines. Other inland provinces such as Ningxia and Hubei also appear to be increasing thermal power capacity. Coastal provinces Shandong and Jiangsu remain as key areas of thermal power output. Jul 2018 China Coal & Power Outlook 15

16 140 China - Monthly Hydro Power Generation - last 5 years (source: national statistics bureau ; in terawatt-hours) TWh / / / / / / / / / / /2018 Monthly Hydro Electricity Generation One key reason for the decline in coal demand has been the boom in hydropower generation in China in recent years, although growth slowed from 24.6 percent year-on-year in 2014, to just 3-7 percent each year between Jul 2018 China Coal & Power Outlook 16

17 140 China - Monthly Hydro Power Generation - Seasonality (source: national statistics bureau ; in terawatt-hours) TWh Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec There is a strong element of seasonality to hydropower, and it can be significantly affected by droughts and other weather patterns. Such volatility has an obvious indirect impact on coal demand. In the first half 2018, hydro electricity output increased by a slight 0.1 percent year-on-year to 463 TWh. Jul 2018 China Coal & Power Outlook 17

18 China Hydro Power Generation by Province 2012 v.s Heilongjiang Jilin Heilongjiang Jilin Xinjiang Tibet Liaoning BEIJING Xinjiang Inner Mongolia Hebei Ningxia Shanxi Qinghai Shandong Gansu ShaanxiHenan Jiangsu Sichuan Anhui Shanghai Tibet Hubei Chongqing Zhejiang Jiangxi Total Power Output Guizhou Hunan Fujian > 2,000 TWh Yunnan Guangxi Guangdong 1,000-2,000 TWh Liaoning BEIJING Inner Mongolia Hebei Ningxia Shanxi Qinghai Gansu ShaanxiHenan Shandong Jiangsu Sichuan Hubei Anhui Shanghai Chongqing Zhejiang Jiangxi Guizhou Hunan Fujian Yunnan Guangxi Guangdong Hainan < 1,000 TWh Hainan The development of hydro power generation in the Sichuan and Yunnan provinces have increased significantly, with output in these 2 areas doubling over the past 5 years. Hydro power output from the Hubei province has only shown a slight increase over the same period. Jul 2018 China Coal & Power Outlook 18

19 80 China - Monthly Wind/Solar/Nuclear/Other Generation - last 5 years (source: national statistics bureau ; in terawatt-hours) TWh / / / / / / / / / / /2018 Monthly Wind/Solar/Nuclear/Other Electricity Generation Significant investment is also being made in wind and solar power, where China is a world leader, and in nuclear power, where China is now the fastest expanding nuclear power producer in the world. Such electricity generation has more than doubled since 2011, and now accounts for around 9 percent of China s total generation, compared to 4 percent in Jul 2018 China Coal & Power Outlook 19

20 China - Monthly Wind/Solar/Nuclear/Other Generation - Seasonality (source: national statistics bureau ; in terawatt-hours) TWh Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec In the first half of 2018, other sources of power generation, which include wind, solar and nuclear, have continued to increase by 25.8 percent year-on-year to 346 TWh. Jul 2018 China Coal & Power Outlook 20

21 China Nuclear & Wind Power Generation by Province 2013 v.s Heilongjiang Jilin Heilongjiang Jilin Xinjiang Tibet Liaoning BEIJING Xinjiang Inner Mongolia Hebei Ningxia Shanxi Qinghai Gansu ShaanxiHenan Shandong Jiangsu Sichuan Anhui Shanghai Tibet Hubei Chongqing Zhejiang Jiangxi Guizhou Hunan Total Power Output Fujian > 50 TWh Yunnan Guangxi Guangdong TWh Liaoning BEIJING Inner Mongolia Hebei Ningxia Shanxi Qinghai Gansu ShaanxiHenan Shandong Jiangsu Sichuan Hubei Anhui Shanghai Chongqing Zhejiang Jiangxi Guizhou Hunan Fujian Yunnan Guangxi Guangdong Hainan < 25 TWh Hainan While generation from nuclear and wind power remain small relative to coal and hydro power, such power generation have been making some headway in Fujian, Guangdong, Liaoning, and Xinjiang. Increases in Fujian, Guangdong, and Liaoning have mainly come from nuclear power expansion, while the increase from Xinjiang came from wind power expansion. Jul 2018 China Coal & Power Outlook 21

22 Coal Supply (domestic production) Jul 2018 China Coal & Power Outlook 22

23 China the largest coal producer in the world China is home to the world s second largest proven coal reserves after the U.S.. According to the Chinese Ministry of Land and Resources, proven coal reserves of 170 billion tonnes correspond to 19 percent of the world s total. The country is also the world s largest producer of coal, accounting for close to half of global production. China targets to increase coal production by 7.3 percent in 2018, but could fall short of goal After reaching a peak in 2013, coal output in China subsequently declined over According to China s National Bureau of Statistics (NBS), total output for raw coal fell 9.4 percent-year-on-year to 3.4 billion tonnes in This was mainly due to government measures to reduce coal production in Chinese mines by 54 days down from 330 to 276 days a year. As coal prices shot up due to a supply-demand gap, China scrambled to ease some of the limits and boost output ahead of peak winter demand. Most coal miners thus escaped such output curbs in 2017, with China s coal output increasing by around 2 percent. According to China s National Energy Administration (NEA), China aims to increase coal output by 7.3 percent to 3.7 billion tonnes this year. However, as safety and environmental inspections continue, domestic production could fall short of this goal. This could balance out the negative impact that pollution control measures have on coal demand and imports. In the first half of 2018, coal production has only managed an increase of 3.9 percent to 1.7 billion tonnes. Elimination of inefficient coal production capacity remain on the agenda Even as China targets to increase coal output in 2018, elimination of inefficient coal mines remain on the agenda due to overcapacity in the country. The NDRC had announced that 800 mln tonnes of inefficient coal capacity would be cut over 2016 to 2020, while adding 500 mln tonnes of advanced capacity. The reductions would be concentrated among smaller mines in the north-east, while large producers in the western regions, such as Inner Mongolia and Xinjiang, would boost supplies. China shut down 183 million tonnes per annum (MTPA) of capacity in 2017 and 300 MTPA in 2016, exceeding the original target of 150 MTPA and 250 MTPA for the two years respectively. In 2018, they aim to reduce coal capacity by another 150 MTPA. Jul 2018 China Coal & Power Outlook 23

24 mln tonnes banchero costa China - Annual Domestic Raw Coal Production (source: NBS of China ; in million tonnes) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, % +15% +3% +12% +1% -3% -5% -9% +2% +4% (1-6) Coal Output Y-o-Y Growth While China s total coal output declined over , the downward trend reversed in 2017 with production increasing 2.4 percent to reach 3.45 billion tonnes. In the first half of 2018, coal production has increased another 3.9 percent to 1.7 billion tonnes. According to China s National Energy Administration (NEA), China aims to increase coal output by 7.3 percent to 3.7 billion tonnes this year. Jul 2018 China Coal & Power Outlook 24

25 China Domestic Coal Output by Province 2017 Heilongjiang Jilin Xinjiang Tibet Qinghai Liaoning BEIJING Inner Mongolia Hebei Ningxia Shanxi Shandong Gansu Shaanxi Henan Jiangsu Anhui Sichuan Shanghai Hubei Chongqing Zhejiang Jiangxi Hunan Guizhou Fujian Yunnan Hainan Guangxi Guangdong Total Coal Output > 800 mln tonnes mln tonnes mln tonnes < 100 mln tonnes Chinese raw coal output is concentrated in Inner Mongolia, Shanxi, and Shaanxi, making up around two-thirds of the country s coal production in Output from these 3 provinces increased in 2017, in line with government plans to increase coal production at inland provinces. In the first half of 2018, coal output in Shaanxi has continued to increase by a particularly strong 11.4 percent to million tonnes. Jul 2018 China Coal & Power Outlook 25

26 Coal Imports (volumes, sources, prices) Jul 2018 China Coal & Power Outlook 26

27 Short haul Indonesian & Russian coal imports surging this year Following China s ban on North Korean coal imports, overall coal and lignite shipments from Indonesia, Australia, Mongolia, and Russia saw a sharp increase in In the first half of 2018, imports from Indonesia have continued to surge, based on vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts. Indonesian shipments to China was estimated to reach 61.8 million tonnes or approximately 49 percent of Chinese imports in the first 6 months of 2018, up from 46.3 million during the same period in On the other hand, imports from Australia were estimated at million tonnes or 34 percent of China s imports in 1H 2018, marginally higher compared to the million tonnes shipped during the same period in While Indonesia supplies mainly lignite which are of a low calorific value, they tend to be low in sulphur and trade at less than half the value of higher-quality thermal coal from Australia, and is thus useful for blending with higher-sulphur domestic supplies or imports. Reuters also reported that Russian deliveries rose a strong 27 percent year-on-year to 10.3 million tonnes in 1H 2018, equivalent to around 8 percent of Chinese coal imports. Russian coal are of a higher quality than most types of thermal coal used for power generation, and are generally used for industrial applications such as sintering and ceramic production, as well as for blending with lower quality coals. In order to serve strong demand in the Asia Pacific market, Russia has also been developing new coal production centers in the country s Far East, as well as improving existing infrastructure connecting coal output located mostly in the country s South to port facilities in their Far East. Long haul U.S. coal uncompetitive in Chinese market; further disadvantaged by Chinese tariffs U.S. shipments to China have not been faring as well, declining 38 percent year-on-year to 2.09 million tonnes in the first 6 months of 2018, amounting to around 1.7 percent of Chinese imports. According to Chinese customs data, U.S. coal exports to China had surged to 3.2 million tonnes in 2017, compared to none in The U.S. is a swing supplier of coal, with exports to Asia largely dependent on price as U.S. coal typically cost more, take longer to ship to Asia, and have a lower quality compared to Australian coal due to their high sulphur content and low heating efficiency. U.S. exports of coking coal also stand to benefit in the Asian market when there are supply disruptions at top shipper Australia. Jul 2018 China Coal & Power Outlook 27

28 However, Australian coking coal prices have generally fallen this year due to a lack of major supply disruptions a factor that has made U.S. coking coal even less competitive in the Chinese market this year. The 25 percent tariff on U.S. coking coal implemented by China is also expected to put U.S. coal at a further disadvantage. The U.S.-China trade war has been escalating, with China implementing import tariffs on U.S. coal and other energy products in retaliation for Trump administration levies, which came into effect on 6 July. The Trump administration has since threatened to slap tariffs on another $200 billion worth of Chinese imports. Coking coal imports fell in 1H 2018, could be further dampened as steam coal prioritized in summer In 2017, coking coal imports increased 17.9 percent year-on-year to reach 69.9 mln tonnes, supported by strong demand from domestic steel mills: China s steel output in 2017 increased 4.6 percent to reach mln tonnes, with August seeing a record amount of 74.6 mln tonnes produced. China s steel mills had been supported by positive steel margins, as steel prices were sustained by ongoing capacity cuts targeting low quality furnaces, and improvements in the construction and industrial sectors. However, in the first half of 2018, coking coal imports decreased by 19.8 percent to 28.9 mln tonnes, in spite of domestic crude steel output increasing a relatively strong 7.1 percent to mln tonnes. This was likely due to Chinese mills requiring less coking coal as they increased usage of higher quality materials, and some inventory run down due to high coking coal prices in 1Q Coking coal imports could continue to remain flat, as coal import restrictions imposed have also resulted in Chinese ports prioritizing thermal coal imports to meet summer power demand. Since April 2018, China has imposed restrictions on imports of coal at some ports, in order to boost domestic thermal coal prices and production. Platts reported that under current import restrictions on coal in southern China, authorities at ports such as Fangcheng, Xiamen and Kemen were allocated import quotas for the year, which were in turn allocated to power plants and steelmakers. But as demand for thermal coal from the power generation sector increased with the summer months, there has been less quotas available for coking coal. For example, at Fangcheng port in southwestern China's Guangxi province, about 4 mln tonnes of coal import quotas are reportedly left for 2H 2018, with coking coal volumes close to being maxed out for the year. In southeastern China's Fujian province, there are purportedly no allocations for coking coal at ports such as Xiamen and Kemen, with priority given to power plants. Jul 2018 China Coal & Power Outlook 28

29 Strong Q1 demand supported steam coal & lignite imports In 2016, China imported mln tonnes of steam coal and lignite, an increase of 25.6 percent, as cuts in domestic coal production helped to prop up imports. In 2017, China s imports of steam coal and lignite continued to increase by 2.5 percent yearon-year to reach mln tonnes, supported by demand from the industrial and power sectors. In the first 6 months of 2018, China s imports of steam coal and lignite increased by a strong 19.9 percent year-on-year to reach mln tonnes, due to strong demand in Q1 from a colder than expected winter as well as gas supply shortages. Steam coal and lignite imports are expected to pick up these few months to meet summer power generation demand. Jul 2018 China Coal & Power Outlook 29

30 mln tonnes banchero costa China - Annual Coal Imports by Type (source: customs ; includes steam coal, coking coal and lignite ; in million tonnes) (1-6) Lignite Coking Steam Until 2008, China was a net coal exporter. However, imports have skyrocketed since then. After a sharp drop registered over , China s total coal imports increased in In the first half of 2018, total coal and lignite imports have increased another 9.2 percent to mln tonnes. Jul 2018 China Coal & Power Outlook 30

31 China - Coal & Lignite Import Sources in 1H 2018 (source: Thomson Reuters ; in % of import volume) Russia 8% U.S. 2% Others 7% Indonesia 49% Australia 34% Indonesia and Australia dominate coal exports to China, accounting for 49 percent and 34 percent respectively of China s import volume in the first half of Indonesia is the main source of lignite, and Australia of coking coal and steam coal. Jul 2018 China Coal & Power Outlook 31

32 China Coal + Lignite Imports by Province 2017 Heilongjiang Jilin Xinjiang Tibet Gansu Qinghai BEIJING Liaoning Inner Mongolia Hebei Ningxia Shanxi Shandong Shaanxi Henan Jiangsu Sichuan Hubei Anhui Shanghai Zhejiang Chongqing Jiangxi Hunan Guizhou Fujian Yunnan Hainan Guangxi Guangdong Total Coal Imports > 30 mln tonnes mln tonnes mln tonnes < 10 mln tonnes The bulk of China s coal imports are received via their coastal ports, with Guangdong accounting for around 19 percent of the country s coal imports in Inner Mongolia, while not a coastal province, has the second largest coal imports, accounting for another 13 percent of Chinese coal imports. Jul 2018 China Coal & Power Outlook 32

33 9 China - Monthly Coking Coal Imports - last 36 months (source: customs ; in mln tonnes per month) 8 7 million tonnes / / / / / / /2018 Monthly Coking Coal Imports In 2017, coking coal imports increased by 17.9 percent to 69.9 mln tonnes as domestic steel production picked up. However, imports appear to have eased in the first half of 2018, decreasing by 19.8 percent to 28.9 mln tonnes, likely due to Chinese mills requiring less coking coal as they increased usage of higher quality materials, some inventory run down due to high coking coal prices in 1Q 2018, and coal import restrictions implemented since April. Jul 2018 China Coal & Power Outlook 33

34 9.0 China - Monthly Coking Coal Imports - Seasonality (source: customs data ; in mln tonnes) million tonnes Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec In the first half of 2018, coking coal imports decreased by 19.8 percent to 28.9 mln tonnes, likely due to Chinese mills requiring less coking coal as they increased usage of higher quality materials, and some inventory run down due to high coking coal prices in 1Q Coking coal imports could continue to remain flat, as coal import restrictions imposed since April have also resulted in Chinese ports prioritizing thermal coal imports to meet summer power demand. Jul 2018 China Coal & Power Outlook 34

35 USD/mt banchero costa 300 Australia Coking Coal Prices - last 12 months (source: CME Group ; USD/mt) / / / / / / /2018 Coking coal prices from Australia had been falling in the first half of this year over concerns of lower Chinese steel demand and production. This was further exacerbated by the lack of supply disruptions following Cyclone Iris in early April 2018, as well as China s introduction of coal import restrictions at certain ports from mid April Jul 2018 China Coal & Power Outlook 35

36 China - Monthly Steam Coal + Lignite Imports - last 36 months (source: customs ; in mln tonnes per month) million tonnes / / / / / / /2018 Monthly Steam Coal Imports Chinese imports of steam coal and lignite picked up by 25.6 percent in 2016 as domestic coal output fell. In 2017, imports continued to increase by 2.5 percent as domestic demand from the industrial and power sectors remained strong. In the first half of 2018, China s imports of steam coal and lignite increased by 19.9 percent year-on-year to mln tonnes, due to strong demand in Q1 from a colder than expected winter as well as gas supply shortages. Jul 2018 China Coal & Power Outlook 36

37 32.0 China - Monthly Steam Coal + Lignite Imports - Seasonality (source: customs data ; in mln tonnes) 28.0 million tonnes Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec In the first 6 months of 2018, China s imports of steam coal and lignite increased by a strong 19.9 percent year-on-year to reach mln tonnes, due to strong demand in Q1 from a colder than expected winter as well as gas supply shortages. Steam coal and lignite imports are expected to pick up these few months to meet summer power generation demand. Jul 2018 China Coal & Power Outlook 37

38 120 Thermal Coal Newcastle FOB Price - last 36 months (Australian thermal coal ; 12,000 btu/p, 14% ash ; FOB Newcastle/Port Kembla ; USD/mt) USD/mt / / / / / / /2018 International thermal coal prices had bottomed out in January 2016 after declining by more than 40% since December Prices have since increased, reaching a new high of over USD 105/mt at the start of 2018 due to strong winter demand, and over USD 105/mt yet again in May 2018 as demand for electricity in China picked up with the start of the summer months. Jul 2018 China Coal & Power Outlook 38

39 Final Words (summary and conclusions) Jul 2018 China Coal & Power Outlook 39

40 Pollution control measures to dampen coal use; winter restrictions to return In early July 2018, China released its pollution action plan, detailing the expansion of pollution-reducing measures to 82 cities across the country. The regions of Beijing, Tianjin, Hebei, Shandong, and Henan will be required to cut coal consumption by 10 percent until 2020, while the Yangtze delta region will have to cut coal use by 5 percent. Special anti-smog measures will also be introduced over autumn and winter again this year, although each of the 82 cities will now be allowed to draw up their own implementation plan. The plan also mentioned that gas storage capacity would be raised to ensure sufficient supplies during winter. China targets to increase coal production by 7.3 percent in 2018, but could fall short of goal According to China s National Energy Administration (NEA), China aims to increase coal output by 7.3 percent to 3.7 billion tonnes this year. However, as safety and environmental inspections continue, domestic production could fall short of this goal. This could balance out the negative impact that pollution control measures have on coal demand and imports. In the first half of 2018, coal production has only managed an increase of 3.9 percent to 1.7 billion tonnes. Short haul Indonesian & Russian coal imports surging this year Based on vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts, Indonesian shipments to China was estimated to reach 61.8 million tonnes or approximately 49 percent of Chinese imports in the first 6 months of 2018, up from 46.3 million during the same period in Reuters also reported that Russian deliveries rose a strong 27 percent year-on-year to 10.3 million tonnes in 1H 2018, equivalent to around 8 percent of Chinese coal imports. Coking coal imports fell in 1H 2018, could be further dampened as steam coal prioritized in summer In the first half of 2018, coking coal imports decreased by 19.8 percent to 28.9 mln tonnes, in spite of domestic crude steel output increasing a relatively strong 7.1 percent to mln tonnes. This was likely due to Chinese mills requiring less coking coal as they increased usage of higher quality materials, and some inventory run down due to high coking coal prices in 1Q Coking coal imports could continue to remain flat, as coal import restrictions imposed have also resulted in Chinese ports prioritizing thermal coal imports to meet summer power demand. Jul 2018 China Coal & Power Outlook 40

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