China’s coal production was down 10% until July 2016 year-on-year. The rate of the decline thus tripled compared to the one experienced in 2014 and 2015.

Chinese coal mine worker
© Reuters

Chinese coal-fired generation is rapidly losing ground to alternative power sources, with the country “well past peak coal”, Tim Buckley, Director at the Institute for Energy Economics and Financial Analysis said. “The rate of transformation in China’s electricity sector continues to accelerate and China continues to diversify away from coal faster than anyone expected,” said Tim Buckley.

Even though China commissioned 70 GW of new coal-fired capacity in 2015, the country continues to use much less coal-fired power generation. The average Chinese thermal power plant utilisation rate in January-July 2016 hit a record low of 47.8%. Policy moves are reinforces this downward trend, where last month the government presented a ban for the construction of new coal-fired power plants countrywide. While overall power demand in January-July rose 2% year-on-year, thermal power generation was down 1.9%. In the first seven months of the year, coal-fired power generation consequently lost share to hydropower, which was up 13.2%, gas (3.1%), nuclear (24.5), wind (14.8%) and solar (27.5%) (Source: Montel).

Chinese coal consumption was down 5.1% year on year in the six months to June but total imports rose 8.2% over the same period. This indicates also that the government’s strategy on closing down inefficient coal mines within the country that add to overcapacities in coal shows some impact.

“The global traded thermal coal price has lifted 30% year to date to USD 65/t, reflective of significant cutbacks in Indonesian supply and rising Chinese imports near term in the face of accelerating and unexpectedly swift domestic coal curtailments,” Buckley said. Chinese coal demand fluctuations are a key driver for global coal prices. The recent gains of the European coal market can be to a large extent attributed to increased Chinese import levels (Source: Montel).