Sxcoal Issue 27# | China coal prices face downside pressure in demand-led market
How China's coal supply and demand evolve this yr and going forward?
Chinese coal market is undergoing a transition from a supply-shortfall-driven market to one led by demand, significantly weighing on coal prices in the foreseeable future, said one senior official from industry consultant Fenwei Digital Information Technology Co., Ltd. at a conference held in Indonesia on September 9.
Feng Dongbin, vice general manager of Fenwei, made the commentary after delving into the current status and future trends of the Chinese coal industry at the 29th Coaltrans Asia held in Bali, Indonesia.
China, the world's largest coal producer, produced 4.71 billion tonnes of coal in 2023, with thermal and coking coal contributing 81.2% and 10.4%, respectively.
The country imported 474 million tonnes of coal in the year, with thermal coal accounting for 78% of the total. Coal exports were just above 4 million tonnes, mostly thermal coal. Domestic production and net imports constitute the total supply of coal in China.
Regarding coal consumption, in 2023, China consumed 4.65 million tonnes of coal, with thermal coal making up 87.3% of the total. The power sector was the largest consumer of thermal coal, representing 63.9% of total thermal coal consumption, Feng said.
The coking industry contributed 12.7% of the total coal consumption, serving as the second-largest coal consumer in China. Combined coal consumption of the power, coking and heating sectors reached 75.7% of the total in China, he said.
Feng noted that China's thermal power and steel sectors faced significant challenges. "Thermal power installed capacity is projected to decline, and the steel industry may struggle with reduced output and structural adjustments, impacting both thermal and coking coal demand," he said.
"China's total coal demand is expected to peak before 2030, followed by a gradual decline. Specifically, coking coal demand had basically peaked in 2023, and thermal coal demand is expected to peak before 2030."
On the supply side, China's coal production capacity is already ample, triggering policies to shift from ensuring supply to stabilizing production, according to Feng.
Fenwei's tracking of mines in various construction states indicated that China's coal production capacity would continue to grow this year, with an additional capacity of 114 million tonnes per annum (Mtpa) and a retired capacity of 29 Mtpa.
Capacity constraints on production have been largely eliminated, given sufficient capacity and abundant backup projects, Feng said, adding China's annual coal output is anticipated to range 4.6-4.8 billion tonnes.
For the supply-demand structure in 2024, the constraint of capacity on production has been basically eliminated, and the focus has turned to the demand side, Feng stated.
"China's coal supply policy has shifted from ensuring supply to safety," he pointed out. "In 2024, the policy disturbance on the supply side is mainly in safety supervision."
Coal output is expected to decrease by 0.8% year on year in the full year of 2024, with coking coal supply particularly affected by production cuts in Shanxi, which may potentially drop 1.9% on the year, he said.
On the demand side, for thermal coal, the main challenge is "the decline in demand in most non-power industries", according to Feng.
The increase in hydropower and new energy generation will also pose a challenge to the growth of thermal power. He expected the year-on-year growth of thermal coal demand may decline to 1.8%, a decrease of 5.7 percentage points from last year.
The pressure on coking coal demand mainly comes from the decline in molten iron production, Feng said, anticipating coking coal demand to decline 1.2% year on year.
"Ongoing monitoring of coke oven capacity utilization is required, and our current observation showed a high likelihood of full-year reduction," Feng added.
Both thermal and coking coal imports are expected to maintain positive growth. In 2023, China's coal imports surged by 62% from a year ago, hitting historical highs, with major suppliers including Australia, Indonesia, Mongolia, and Russia. In 2024, China's coal imports are set to rise 6.9% year on year backed by expanded import sources.
Meanwhile, both thermal and coking coal are anticipated to face inventory accumulation throughout 2024, putting pressure on prices, according to Feng.
In summary, the Chinese coal industry is shifting from a supply-shortage-driven market to one led by demand. Prices face significant downward pressure in both the short and mid-to-long term, he concluded.