China Shenhua Energy this week is reporting an 18 per cent drop in coal sales in 2015, to 371 metrics.
Shenhua flagged in March of last year that its coal production was expected to decline 10 percent in 2015, guidance that has proven directionally accurate. Its internal coal production was down 8.4 percent (the 18 percent drop in sales includes coal from third-party providers).
Inside those numbers is this big one: The company’s coal imports fell to almost nothing, down 97 in 2015 to a scant 0.2 metric tons, encapsulating a larger trend in which China’s total coal imports were down 30 percent overall.
Our view is that it’s hardly inconsequential that Shenhua has ceased coal imports, and that the effects of this new reality will be far-reaching. The company is still holding (for now) to its public commitment to the US$1bn development of the Watermark coal project in the Liverpool Plains of New South Wales, Australia, but it seems an empty pledge. T
he project is encumbered by an obvious lack of financial merit. And the absence of any strategic fit is glaring. Shenhua is simply a company that no longer relies on imported coal and that is faced now with the prospect of continuing to curtail its domestic coal production due to declining demand. It doesn’t need a big new mine in Australia or anyplace else.
We note also in the recent Shenhua data the company was a net coal exporter for the first time in many years (albeit only a net 1 metric ton in 2015). With Shenhua owning its own dedicated in-house rail and coal port infrastructure (in fact, the largest coal port in the world), and with the company reporting a significant net cash profit margin on its in-house coal production, there is scope now for an acceleration of coal exports from China in the face of continued declines in domestic demand.
IEEFA sees a further 1 to 2 percent decline in China coal consumption in 2016, although we note the Chinese authorities are forecasting a more bigger drop, of 3 to 4 percent (after the 4 to 5 percent decline in 2015 and 2.9 percent decline in 2014).
Shenhua’s coal-fired power generation was down 3.6 percent year over year to 210 billion kWh in 2015, consistent with the stagnating electricity demand profile of China and the continued diversification of the Chinese electricity grid away from coal toward more hydro, nuclear, wind and solar generation.
Similar stirrings are taking place in India, where Coal India Limited is on track to report a 10 percent year-over-year growth in coal production in 2015-16 to 540 metric tons. This, in conjunction with Shenhua’s sales-volume collapse, means that Coal India is now by far the largest coal producer on the planet, selling 50 percent more coal that Shenhua and more than double U.S.-based Peabody Energy, the biggest private-sector coal company in the world.
China and India today are producing their own coal, in other words, a trend that doesn’t suggest either country is in the market for coal from other countries.
Tim Buckley is IEEFA’s director of energy finance studies, Australasia. (Here’s a link to the full China Shenhua production report for 2015)