--Clyde Russell is a Reuters columnist. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Aug 7 Just how serious is
China about cutting or limiting coal consumption?
That's something that global coal miners, traders and
environmentalists would love to know, but the likelihood is that
it is the wrong question.
Hardly a week goes by without an announcement by one of the
many central or regional authorities about plans to curb the
burning of coal, the fuel that meets about two-thirds of China's
electricity needs and powers the world's biggest steel industry.
The latest was from the Beijing Municipal Environmental
Protection Bureau, which was reported by state media as saying
coal use will be banned in the six main districts of the capital
by the end of 2020.
This is correctly viewed as the authorities' response to
what is self-evident to anybody living in, or visiting, many
Chinese cities: Pollution has reached intolerable levels.
The problem for the global coal industry is that the country
on which it is counting for much of the growth in demand is now
actively looking to curb use of the fuel.
Questions are asked as to whether this time the Chinese
authorities are serious about limiting coal consumption, as past
efforts have stumbled on the altar of economic growth.
Given the weight of social pressure on the ruling Communist
Party to do something about pollution, it seems that the answer
is most likely, yes, this time they are serious.
But for the international coal industry, concerned about the
future of exports to China, the correct question is not by how
much China will limit coal consumption, but how much of the fuel
it will allow to be mined domestically.
After all, even if China does limit coal use to 4.1 billion
tonnes next year, what is important to the global industry is
how much of that needs to be imported, at what price.
China produced about 3.7 billion tonnes of coal in 2013, and
is on track to match this in 2014, given that 1.85 billion
tonnes were mined in the first six months of the year.
Coal imports have also been roughly steady, rising 0.9
percent to 159.87 million tonnes in the first half of 2014 from
the same period a year ago. Imports were 267.1 million tonnes in
2013, up 14 percent from 2012.
China, similar to the rest of the world, is currently in a
coal surplus, with domestic prices falling and imports only able
to compete by matching lower prices and by being easier to ship
to the industrial southeast of the country.
More than 70 percent of China's coal firms are loss-making,
and the situation is likely to get worse, Wang Xianzheng, the
chairman of the China Coal Industry Association, told an
industry forum on July 24.
This is leading to the closure of many smaller and less
efficient mines, a process being accelerated by authorities who
are closing pits for safety reasons.
Mine openings and expansions, however, are likely outpacing
closures, with more than 100 million additional tonnes approved
last year, part of the 2011-15 five-year plan to increase annual
capacity by 860 million tonnes.
CHINA'S COAL CHOICES
What is apparent is that China, if it chooses to, will be
able to mine all its domestic coal needs. But it probably won't.
It's more likely that large, cost-efficient mines will be
promoted, while smaller scale operations are forced to close,
either through regulation or lack of profitability, given that
cheap coal prices are likely to persist for several years.
What also appears to be an increasing trend is to
concentrate new coal consumption in more remote areas in the
northwest of the country, close to where it is mined.
This new consumption can take the form of industry, power
plants or coal-to-gas plants.
At the same time, polluting power plants and industries
closer to major city centres are being idled, while others are
being encouraged to be more efficient.
What this means, particularly in the industrial zones of the
southeast, is that there will still be a market for imported
coal, especially for grades that are of higher calorific value.
The problem for coal miners in Australia, Indonesia, South
Africa and the Americas is that this isn't a sure enough bet on
which to base millions of dollars of investment to expand
Over the next two decades, Chinese coal consumption is
expected to rise even as the fuel's share of power generation
declines, with nuclear, gas and renewables increasing.
For global coal miners seeking to grab some of this rising
consumption, the key is to watch trends in China's domestic
Signs that output is stagnating, or growing more slowly than
use, will open the door to further imports, with the proviso
that these will have to be at prices cheap enough not to
encourage increased domestic mining.
(Editing by Tom Hogue)