Commodity Market Report
China coal markets long-term outlook H1 2015
Report summary
Slowing economic growth and its decoupling from energy demand have considerably weakened coal demand. Thermal coal demand in 2014 contracted for the first time since 1998 while metallurgical coal demand remained flat. Chinese miners are battling for survival in the current low price environment; nearly 80% of thermal coal mines and 35% of metallurgical coal mines are cash negative. Absent underlying demand improvement or supply rationalization, a recovery in coal prices looks a distant dream.
Table of contents
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Executive summary
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Key themes
- Government policies are not solving China's oversupplied market
- Environmental policies: targets emerge, but detail is sparse
- Power reform in early stages, but could be a further drag on coal long term
- Changes from the previous outlook
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Key themes
- Economic outlook
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Prices
- Prices and politics usher in deflation, with recovery around 2020
- Domestic thermal coal price forecast
- Domestic hard coking coal price forecast
- Seaborne thermal coal price forecast
- Seaborne metallurgical coal price forecast
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Demand
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Thermal summary
- Thermal coal demand - regional analysis
- Coastal region
- Central region
- North region
- Northeast region
- West region
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Metallurgical summary
- A weak property market pushes demand lower
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Environment and market forces pressure metallurgical coal demand
- There will be consecutive new demand for seaborne metallurgical coal from two projects
- Metallurgical coal demand in China expected to peak in 2023
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Metallurgical coal demand – regional analysis
- North region
- North-east region
- Coastal region
- Central region
- West region
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Thermal summary
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Supply
- Thermal coal supply
- Metallurgic coal supply
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Infrastructure
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Railroads
- Weak coal demand will lower rail capacity utilization
- Power transmission
- Ports
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Railroads
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Trade
- Thermal coal
- Metallurgical coal
- Supply-demand balances
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Risks and uncertainties
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Coal vs environment: majority of risks point to downside for coal demand
- Carbon emission reduction plans may evolve faster than in our base case
- Renewables penetration and UHV transmission expansion in power markets
- Coal quality as a problem and reshaping the future in an ultra-low emissions world
- The trade-off between fears of nuclear plant development and increased coal consumption is hard to assess
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Government intervention, and the pace and scale of market reforms
- China may take drastic steps to insulate its domestic industry from coal imports
- Traditional relationships between economic growth and power generation may be changing: the rate at which emerging economies decouple economic growth from electricity generation may be different than we forecast
- Continual cost deflation: advances in equipment utilisation, extended diesel downside, further productivity gains, technological improvement
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Coal vs environment: majority of risks point to downside for coal demand
Tables and charts
This report includes 43 images and tables including:
- Economic indicators
- Thermal supply demand balance, Mt
- Metallurgical supply demand balance, Mt
- Risks assessment, H1 2015
- Thermal coal demand - power sector (Mt)
- Thermal coal demand - non-power sector (Mt)
- Domestic thermal coal supply (Mt)
- Seaborne thermal coal imports (Mt)
- Domestic spot price vs long-term contract (RMB/t)
- Market discount to FOB QHD (after energy adjustment)
- Domestic coal prices, RMB/t - history (nominal) and forecast (real 2015)
- Seaborne thermal coal price forecast (US$/t, Real 2015)
- Seaborne metallurgical coal price forecast (US$/t, Real 2015)
- Installed capacity by fuel type (GW)
- Power generation by fuel type (TWh)
- Total thermal coal demand (Mt)
- Thermal coal demand - non-power sector (Mt)
- Thermal coal production by province, Mt
- Thermal coal seaborne imports by country and rank, Mt
- Thermal coal landborne imports by country, Mt
- Metallurgical coal production by province , Mt
- Metallurgical coal imports by country, Mt
- Metallurgical coal imports by rank, Mt
- Power transmission import by region and power source (TWh)
- Forecast loading port capacity in north China (Mt)
- 2014 thermal coal trade flows (Mt)
- 2014 metallurgical coal trade flows (Mt)
- Domestic thermal coal margin curve (FOB Newcastle, US$61/t)
- Domestic metallurgical coal margin curve (FOB Queensland US$106/t)
- Supply-side initiatives: coal quality standards for domestic consumption
- Thermal coal demand in coastal China and seaborne imports (Mt)
- China coal supply demand balance (Mt)
- China's five regions
- Thermal coal demand by region (Mt)
- Power coal demand by region (Mt)
- Non-power coal demand by region (Mt)
- Demand: Image 8
- Demand: Image 9
- Demand: Image 10
- Demand: Image 11
- Transport cost estimates to move coal from Ordos to QHD for private miners (RMB/t)
- Railway capacity expansion from Three-west region and Xinjiang, 2014-2020 (Mt)
- Forecast of railed coal to import regions by groups (Mt)
What's included
This report contains:
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