Times a-changing for China’s thermal coal market on increased hydro flow

OREANDA-NEWS. March 21, 2016. China’s huge investment in hydro-electric power, including such schemes as the massive Three Gorges project on the Yangtze river in Hubei province, is starting to pay off. But at the same time, it is adding to the woes of an already depressed thermal coal seaborne market.

Already reeling from plummeting prices, stagnating demand and chronic oversupply, the thermal coal market for China now has to contend with a rival: a low-cost source of power generation that is growing each year.

Hydro power generation for China leapt 24% year-on-year in the January-February 2016 period to 129 billion kWh from 104 billion kWh in the same period last year, according to China’s National Bureau of Statistics, March 15.

China’s hydro-electric dams are generating approximately 20% of China’s annual electricity output, compared with a share of around 70% for coal-fired generation. At the same time, China is investing heavily in alternative energy sources such as nuclear, solar and wind turbine generation, albeit starting from a very low base.

This winter season in China actually witnessed a decline in coal-fired power generation, with the Asian country’s coal plants output falling 4.3% year-on-year in the January-February 2016 period to 678 billion kWh, said China’s statistics bureau.

In fact, China’s coal-fired electricity generation has recorded negative growth for most of 2015. As a result, prices for thermal coal imports failed to produce their traditional November to February rally.

At China’s southern ports, the main intake point for imported thermal coal from countries including Australia and Indonesia, delivered prices have traded in a sideways fashion between \\$43-\\$45/mt CFR basis for 5,500 kcal/kg NAR coal from the middle of November 2015 to mid-March 2016, according to Platts prices.

China’s almost silent revolution in diversifying its energy economy to reduce its dependence on coal-fired electricity is likely to prompt a re-think for energy suppliers, including thermal coal shippers. Coal does continue to dominate China’s energy generation mix, but the times they are a-changing, as Bob Dylan once said.