A cool summer and increased levels of hydro generation has resulted in a significant reduction in coal-generation in China over recent months, but the biggest impact has been on coal imports, which have fallen by half.
New analysis from Deutsche Bank notes the precarious nature of the coal industry even in the world’s most voracious consumer. It notes that even in China, coal is on a downward trend, and it has written down the value of some coal companies in China by an astonishing 92 per cent.
This first graph shows how coal consumption in August was down 11 per cent from the previous year
The second one is the killer graph of Australian coal exporters. It shows that coal imports into China fell by half in November, and nearly that much in October.
Deutsche Bank expects that could continue for all of 2015, as the government seeks to rebalance domestic supply and demand. “There is no defying the fall,” it notes.
China coal consumption may not rise at all over calendar 2015, and new domestic projects may not be encouraged. To address the plunging cost of coal, the government is likely to focus its measures on restricting imports, with a cut in half the most likely outcome in most of the scenarios mapped by Deutsche Bank.
Astonishingly, this has resulted in Deutsche Bank slashing the earnings estimates of some Chinese coal producers by 92 per cent. That is what has happened to China Coal, a producer based in the north with high sulfur content. New environmental protection policies mean that it has to make its coal cleaner, and find new markets in the south.
“These actions will increase its unit cost and put more pressure on its profitability, especially when the coal price is in a downward trend,” Deutsche notes.