The Coal Market – The Chinese Change the Rules

Until 2003, China was among the largest coal exporters. Since then, China has undergone massive change, which transformed it into a swiftly growing industrial power. The country's urbanization process caused it to consume much more electricity, and it began consuming more coal than it could produce. The result of this process was China's turning from a coal exporter to a giant importer, which generated a sharp and continuous increase in global coal prices.

Since 2014, there has been a decline in the Chinese economic growth. The decline caused a decrease in the coal demand and import, and contributed to the decline in global coal prices. In order to revitalize the slow economy and eliminate the standstill the Chinese government generated fiscal and monetary incentives, and among the key steps taken were lowering the interest on loans and expanding governmental expenditures. Also, in order to cope with problems in the environmental realm and protect the local coal mining sector from losses, the government employed exceptional measures of reducing the local coal supply.

Following the steps for facilitating credit, in 2016 the Chinese industry began to grow at a higher rate than predicted at the beginning of the year. However, the massive cut in coal production led to a shortage in the local market and to a significant increase in coal import to China, and consequentially, to the rise of coal prices in the international market.

China is still largest manufacturer and consumer of coal in the world. Its local coal manufacturing is 3.5 billion tons annually and in 2018 it imported 280 million tons of all types of coal. Coal consumption in China continues to grow, but the coal rate within the gas mix in electricity production is on the decline, in accordance with the country’s set target (a decline from 64% in 2015 to 58% in 2020). Coal is being replaced by gas and renewable energy.

However, additional countries in Asia, such as India, South Korea, Taiwan, Malaysia and others, are undergoing a growth process that increases demands for energy.

From China to India

India has become an industrial powerhouse that consumes much more electricity and as a result, coal as well.

However, the impact on international coal pricing is unclear. India has substantially increased coal import over the last few years, becoming the largest importer in the world, but seemed to have reached the peak in import volume. The rate of import increase is not expected to rise substantially, as India is determined to significantly expand local coal manufacturing at the expense of import.

Coal can heat up independently and ignite.