China’s wavering supply and demand trends have left Australian coal suppliers grappling with a moving production target in the years ahead.
With this in mind we spoke with consulting firm CRU’s Head of Australia, Alex Tonks, ahead of the Australian Coal Conference – 16-17 August, Sydney to get some clarity on the very latest developments occurring within Chinese borders.
What was agreed at the National Party Congress of 2017 and what impact will it have on coal policy?
In summary I’d say there is strong emphasis on pollution control and it will have an impact on coal demand in major cities and along the coastal area. Households in the Beijing-tianjin area in recent years have switched (or are actively switching) from coal burn for heating to natural gas/electricity heaters.
Will China continue to intervene in the market to control seaborne prices?
China will continue to intervene in the market to control domestic prices more so than seaborne prices, however as an arbitrage market, higher domestic prices will provide support for seaborne prices.
We believe China is consolidating its coal mining industry, aiming is to improve profitability, safety and efficiency and this will continue for some time yet. While the 276 policy has since been lifted and the gov is encouraging new supply onto the market, there remain production control measures such as mine safety checks ongoing throughout the year. More recently, there have been reports of government officials clamping down on mines that are producing beyond capacity (to take advantage of high coal prices).
Can you explain China’s renewables policy and its consequences for coal demand?
China is putting on the brakes in renewables expansion to reduce curtailed electricity (generated but not distributed due to lack of infrastructure) and improve utilisation rates, with the NDRC, MoF and NEA jointly publishing a policy on reducing subsidies to the PV industry on 31 May 2018. The policy target for PV is shifting from scale expansion to enhancing efficiency, by encouraging firms with more advanced technology and lower costs. The NEA added that they will not limit the development of PV stations, so long as they do not need subsidies.
How volatile is China’s coal policy?
Since early 2016 it has been very stable. However, there are many disconnecting messages and policies between central, state and provincial governments.
To what extent can China really manage the seaborne coal price?
We believe that China is more focused on managing prices in its domestic industry. However given the scale of China’s imports it can still have significant impact on seaborne prices through arbitrate and import policy. Importantly, seaborne prices could be very well supported by a more profitable domestic Chinese industry as we view China as the highest cost producer.
What levels of demand can we expect from China over the coming year?
Thermal coal demand in 2019 will hit 3.31 bn. t, up 6% from end-2017. Total coal demand is expected to grow on average 2% per year over the next 4 years.
Alex Tonks will expand on these insights at the Australian Coal Conference – due to take place 16-17 August in Sydney.