To the growing list of data that demonstrates how China’s economic growth is slowing down, add this: At China’s largest coal port, thermal coal inventories have built up so much that the port is almost out of coal storage space, according to analysis from Bernstein Research.
June is normally a busy season for coal traders as power plants in southern China stock up for the summer months. Summer is China’s peak electricity season because the heat prompts people to turn on their air conditioners.
But instead of the normally brisk trading, coal stockpiles are building up at Chinese ports, putting further pressures on domestic Chinese coal prices that have already slid more than 10 percent since late last year.
At Qinhuangdao, China’s biggest coal port, inventories have skyrocketed in the last month to reach more than 8m tonnes. Qinhuangdao is a key transshipment point for China’s domestic coal, which is mostly mined in the interior, transported to Qinhuangdao or other nearby ports by rail or truck, then shipped to power stations in southern China.
China is the world’s biggest consumer of thermal coal—which is burned in power plants and provides more than 70 per cent of China’s electricity—and one of the world’s biggest net importers of coal. So the buildup in port stockpiles is significant in the near term because it could reduce demand for coal imports, weighing on global coal prices at a time when commodities across the board grapple with the impact of the Chinese slowdown.
And in the longer term, the high inventories point to an even more significant truth: China actually has plenty of coal under the ground, it only imports coal now because it doesn’t have the railways and infrastructure in place to efficiently get enough coal from the mines to the power plants thousands of kilometres away where the coal is needed.
This situation will shift as China builds more railways, and more ultrahigh-voltage power lines that will transport power mines to distant cities. Because of those changes, in the long run China may not be a net importer of thermal coal at all, some analysts believe. As Bernstein Research said in a note on Tuesday:
The long term dynamics behind falling coal prices are structural: power and steel consumption growth are slowing; coal production capacity and transport capacity are continuing to increase. China added ~400m tons of incremental coal production capacity in 2011 but hardly anyone noticed because coal demand increased by ~420m tons. In 2012, we expect that the same or more incremental production capacity is being added into a much slower market.
This process of becoming more self-sufficient in coal could be accelerated by Beijing’s recent push to accelerate infrastructure projects, according to the note.
“We expect ~9,500km of new coal-dedicated rail projects to be completed between 2012 and 2014, together with ~1,600km that were already completed last year. The recent announcements from the Chinese government about the stimulus initiatives have highlighted rail lines, new energy and power transmission. In other words, these are projects that ease the path of coal or power to market or replace coal as an energy sources.”
The outlook for coal, in this analysis, is looking a bit sooty.
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