China's energy and coal policy changes impact global market greatly Policy 2019-10-31 16:50:00

Evolving energy and coal policies in China, the world's top energy user and the largest producer and consumer of coal, are impacting both domestic and global coal markets significantly, said Sarah Liu, vice president of Fenwei Energy Information Services, at the 6th International Mining and Resources Conference (IMARC) in Melbourne on October 31.

IMARC is Australia's largest mining event, bringing together over 300 leaders of global mining companies, 7000 participants from more than 100 countries. Industry portal, run by Fenwei Energy, is the only media partner of IMARC in China.

It is important to keep a close watch on China's policy as China is such a big market and a 1-2% change in its supply-demand will have significant impact on both domestic and global markets, Sarah said during her presentation.  

China's energy and coal market is a policy-driven market, and the related market supply-demand, import-export and prices are all greatly affected by the policy, she said, while elaborating on key policies including the energy policy, supply-side reform, safety and environmental protection, and import regulations.

China has been working to restructure energy structure, controlling energy consumption and consumption intensity, and building a clean energy industry system, aiming to reduce coal to less than 58% and increase non-fossil energy to 15% of its energy mix by 2020.

Such targets are expected to be achieved as planned, according to Sarah, as the share of coal has been declining in China over the years and clean energy is increasing obviously. In 2018, the share of coal, natural gas and clean energy was 59%, 8% and 14%, respectively.

While the share of coal-fired capacity decreased to 53% in 2018 from 68% in 2010 and that of clean energy capacity rose to 40% from 27%, the share of coal-fired power generation dropped to 64% in 2018 from 76% in 2010, and clean energy share up to 30% from 19%, she pointed out.

"China is upgrading its power sector; all coal-fired power plants shall complete ultra-low emission transformation by 2020," she noted. Ultra-low emission transformation is also ongoing in China's iron and steel industry.

According to 2015 Paris Agreement, by 2030, China's CO2 emission per unit of GDP will be 60-65% lower than that of 2005, and the proportion of non-fossil energy consumption will increase to 20%.

Meanwhile, massive supply-side reform in the country's coal industry, started from early 2016, has basically completed, Sarah said.

During 2016-18, 700 million tonnes per annum (Mtpa) of outdated coal capacity was eliminated in China, and another 140 Mtpa capacity is expected to close in 2019 and 2020, outpacing the 800 Mtpa target for 2016-2020, showed Fenwei estimates based on its coal mines database.

Now, the focus of supply-side reform is shifting to "build and release high-quality capacity", contributing to rapid recovery in coal production, according to Sarah.

This year, the Chinese government accelerated approval of new coal mine construction projects. Around 73% of the new capacity is thermal coal, and 90% of the new capacity comes from northern and western China - Inner Mongolia, Shanxi, Shaanxi, and Xinjiang, according to Sarah.

"Along with the increase of effective capacity, coal output is recovering rapidly," she said. "Yet, coal production has been affected by safety inspections to a certain extent, as illegal and noncompliant operations still exist."  

On the demand side, coal consumption of downstream sectors has been negatively affected by the government's battle against air pollution, she noted.

Pollution control is one of the top three tasks of the Chinese government, with a three-year blue sky action plan as the most important guidance. The main measures include capping coal consumption in key areas, reducing scattered coal consumption, coal trucking restriction and off-peak production in energy-intensive industries during heating season.

By 2020, total coal consumption in Beijing-Tianjin-Hebei and surrounding areas will decrease by 10% from 2015, down 5% in Yangtze River Delta, and negative growth in Fenwei Plain including Henan and parts of Shanxi and Shaanxi, two of China's biggest coal-producing provinces.

Moreover, newly-added capacity in energy-guzzling and resource-intensive industries is not allowed unless for capacity replacement – new and high-quality capacities to supplant backward ones at no increase of capacity.

For the import market, import regulations have always played a major role in affecting China's domestic and also global coal market. The Chinese government often uses multiple tools to control imports, such as tariff, quality requirement, import quota, as well as clearance control, Sarah said.

China's coal import experienced the policy change from discouraging to encouraging, followed by tightening again. Coal import was discouraged before 2005 through import tariffs (6% for thermal coal and 3% for coking coal and anthracite), then was encouraged from 2005 by cutting import tariffs. Import tariffs were restored in 2014, 5-6% for thermal coal, 3% for coking coal and anthracite.

China has shifted to a net coal importer from coal exporter since 2009, and its coal import demand remains strong, with imports continuing rising this year despite various restrictions, Sarah stated.

Chinese customs data showed China imported 251 million tonnes of coal in the first nine months this year, a 9.5% increase from the same period last year.

The rising import volumes rendered China's import flat target for 2019 unlikely to achieve, said Sarah. "We expect the full year imports would exceed 300 million tonnes, possibly to 320 million tonnes."

China plays a decisive role in the change of seaborne market prices. This is determined by the fact that China is a marginal buyer and Chinese buyers are highly price sensitive, constantly comparing the price gap between seaborne and domestic coal.

According to Sarah, the price pattern between China and seaborne market is more typical in coking coal. The CFR price of seaborne hard coking coal usually fluctuates around China's domestic market price, between the VAT-excluded and VAT-included prices of similar quality domestic coal at Jingtang Port.

Regulations of the world's top coal importer bring great volatility to the seaborne market. Its policy changes directly impact coal import demand, and swing of import would lead to big change of seaborne demand in the short time, significantly affecting seaborne market prices, Sarah said.

Import restrictions will be in place for a relative long time, and flexibly adjusted based on domestic coal supply and demand situation, with the main purpose to ensure import volumes at a reasonable level, to fill the domestic supply gap but not to compress domestic supply seriously, she added.

(Writing by Jessie Jia  Editing by Harry Huo)
For any questions, please contact us by or +86-351-7219322.

Share this article
Connect with us

Editors Recommendations

1 Yulin plans to rectify 19 private coal mines, impact on market limited 2020-06-05

Yuyang district, Yulin city in northwestern China's Shaanxi province has planned to carry out concentrated rectification on safe production at 19 private coal mines in the district to further strength

2 Russia Jan-May coal exports slide 9.25% YoY 2020-06-05

Russia exported 71.30 million tonnes of coal in total over January-May, down 9.25% from 78.57 million tonnes in the same period last year, according to preliminary statistics from the Energy Ministry

3 Qinhuangdao coal storage still hovering low despite mild rise 2020-06-05

Coal stockpiles of Qinhuangdao port, China's top transshipment pivot of the fuel from North to South in the Bohai Bay, were hovering around at a low level despite a small pickup recently.

4 Shanxi province accelerates closure of small coal mines to enhance safety 2020-06-05

Coal mining center Shanxi province decided to shut down more small-scale coal mines permanently by the end of this year, as part of its effort to enhance coal mine safety conditions and lift concentra

5 Chinese coking coal miners report sliding stocks amid smooth sales 2020-06-04

China's coking coal miners saw a slide of inventories amid recent resilient sales, bolstering prices to recover from a downside that had lasted for three months. Buying enthusiasm of coki

6 Indonesian thermal coal prices keep falling on concerns of quota shortage 2020-06-04

Lower offers of Indonesian low-colorific value thermal coal were seen in the Chinese seaborne import market, as buying interest was curbed by concerns of quota shortage. The most-active 3

7 CHN Energy sets Jun contract price; impact on spot thermal coal remains unclear 2020-06-04

The long-awaited June term contract pricing by China's top miner CHN Energy came out with a big hike near late this week, the impact of which, however, remained unclear as to the spot market.

8 China Coal Daily Track (Jun 4) 2020-06-04

Thermal coal Production area Coal sales were relatively smooth in northern Shanxi, and prices kept stable. Some miners in Shaanxi and Inner Mongolia were in suspension amid safety crackdowns and

9 CHN Energy Jun term contract thermal coal prices rebound sharply 2020-06-04

China's top coal mining group China Energy Investment Corporation, or CHN Energy, adjusted up its monthly contract thermal coal prices for June shipments sharply, sources disclosed. CHN E

10 China's strict inspection may bolster thermal coal prices at production areas 2020-06-04

The intensified safety and overproduction inspection in Shaanxi and Inner Mongolia is likely to continue bolstering thermal coal prices at main production areas in the short run. Shaanxi,

Most Read Articles

1 China's spot thermal coal market quiet amid growing bearishness 2020-06-01

Chinese spot thermal coal market remained quiet at the beginning of this week, amid rising bearishness among participants that prices could fall back in the short run. The soured outlook

2 China manufacturing rebounds as economy shakes off coronavirus, Caixin PMI shows 2020-06-01

Manufacturing activity in China rebounded in May driven by a jump in output as companies resumed production after the coronavirus lockdown in the first quarter, indicating the nation's recovery from t

3 Russia's rail link to port of Murmansk severed by bridge collapse 2020-06-03

Russian Railways has halted passenger and cargo rail transport between the northern port of Murmansk and the rest of Russia after the collapse of the only railway bridge linking the two, the national

4 China's seaborne thermal coal market quiet amid low demand; downturn looming 2020-06-03

Chinese seaborne import thermal coal market remained flat similar to the past few days, as no power plants renewed tenders and traders stood on the sidelines. The best offer for a July-de

5 Indonesian thermal coal prices edge lower amid poor demand 2020-06-01

Chinese seaborne import thermal coal market opened the week with lower offer prices of Indonesian cargoes, as Chinese utilities and traders held back on buying after Chinese domestic prices began soft

6 Chinese end users ease up on thermal coal purchase on lack of clarity 2020-06-02

Chinese end users have eased up on purchase of domestic thermal coal since last week, due to a lack of market clarity relating to term contract prices for June and supply-demand situation.

7 Chinese seaborne thermal coal market muted; trades thin 2020-06-02

China seaborne import thermal coal market was quiet with no new trades heard. Offer prices of Indonesian cargoes edged lower whereas Australian coal prices were largely unchanged. Indones

8 China to approve 30 UHV power transmission lines in next 5 yrs 2020-06-03

China will have more than 30 new ultra high-voltage (UHV) power transmission lines approved by 2025, driving 587 billion yuan of investment into the industry, according to a report issued on June 2.

9 China's May steel sector PMI picks up to 50.9 on quickened recovery 2020-06-03

China's Purchasing Managers' Index (PMI) for steel sector recovered to 50.9 in May from 45.9 a month earlier, data from the CFLP Steel Logistics Professional Committee (CSLPC) showed, indicating steel

10 China coking coal market buoyant, sales improve 2020-06-03

China's coking coal market showed signs of recovering after three months of decline, chiefly underpinned by brisk sales from mines. With a 150 yuan/t coke price hike last month, some coke

Scan to download mobile APP