our new study, An Analysis of Coal Price Trends in China, shows that the rapid increase in China’s coal prices since June 2016 was mainly driven by shrinking domestic supply due to China’s effort to cut overcapacity in the coal industry.
In order to stabilize coal prices, the Chinese government is taking measures to increase supply and is encouraging coal and power companies to sign long-term supply contracts.
In the long term, China’s coal demand will stabilize at around 4 billion tonnes, which can be fully met by domestic supply. As China reaches a balance in domestic coal demand and supply, the coal price and coal imports will decline.
Driving factors behind China’s recent coal price surge
Analysis of future coal consumption in China
China’s coal consumption has been steadily declining in the past few years with the first decline of 2.9% in 2014 followed by 3.7% in 2015. In the first three quarters of 2016, this trend continued and coal consumption decreased by 68 million tonnes or 2.4%. China’s energy consumption per unit GDP has also been declining. China will gradually shift away from high energy consumption and increase the proportion of non-fossil fuels in its energy mix.
Forecast of China’s coal import demand
In the long run, China’s coal demand will stabilize, and domestic coal supply will meet the country’s demand. This analysis shows that China’s demand for imported coal will decline in the years to come. China’s coal capacity is currently around 5.7 billion tonnes, of which 800 million tonnes are illegal projects. About 310 million tonnes have been closed, leaving 4.6 billion tonnes of compliance capacity in 2015, which can fully meet China’s projected 4 billion tonnes of consumption demand.
WU Lixin, QIN Rongjun and REN Shihua, Coal Strategic Planning Research Institute | China Coal Research Institute
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