With all the debate over what proposed coal export terminals would mean for the Northwest, it’s useful to evaluate what coal exports would mean for China. It’s China, after all, where the bulk of the Northwest’s coal shipments would be headed. And it’s in China where recent news accounts have pointed to falling prices and glutted demand.
China has ample reserves of coal. Historically, the country met virtually all of its demand for coal with domestic resources, but in 2009 it became a net coal importer. (China currently supplies perhaps 5 percent of its coal use with imported coal.) Consumer of roughly half of all the coal used worldwide each year, China’s shift sent ripples through the global coal trade, a phenomenon that’s been scrutinized in some detail.
Less well understood is how coal imports are affecting the Chinese coal industry. Toward that end, here are excerpts from a July 28 article by Lü Mengqi on the Chinese-language news website Chinanews.com translated by Stevan Harrell:
China’s coal prices are continuing to drop, sales losses in many regions are quite severe, and the adverse affect of imported coal on China’s coal market is rapidly magnifying.
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The Datong Coal Group is one of China’s large coal companies, and the price of their coal has recently dropped by 80 to 120 yuan [about 13 to 19 dollars] per [metric] ton. Mine supervisor Ma Rui told this reporter that although they have not yet curtailed production, we can’t speak of making any profit.
Even though prices are continuously dropping, a lot of coal companies still cannot sell their coal. In Jinzhou city, one private mining company’s empty land is piled high with coal, they have laid off two thirds of their workers and have already limited production for over three months, but there has been no improvement at this site, and they are only able to sell one or two thousand tons per month, with sales of less than a million yuan, a huge difference from their former situation, where they could sell as much coal as they could produce.
The harbors at Qinhuangdao, Huanghua, and Tangshan [in eastern Hebei Province] constitute China’s largest series of coal-import ports, as well as the most important ports for shipping northern coal to the south by sea. They handle over 300 million tons of coal per year, and now the coal stored in warehouses there is piling up fast. This year up to mid-June, these three large harbors have already stored 16 million tons of electrical coal, and two of the harbors have reached their maximum coal storage capacity.
Two years ago, as China began large-scale coal imports, the price of imported coal rose, enough to send up the price of domestic coal. But the current situation has been spurred on by the continued softening adjustment of the world coal markets.
In other words, China’s domestic coal industry is finding itself in direct competition with importers of low-cost coal from abroad—to the detriment of the Chinese industry, at least so far.
Yet there are a range of strategies that China’s coal interests can deploy that would help them compete with foreign coal, including technological improvements, domestic infrastructure investments, or subtle trade barriers.
The Chinanews.com article continues:
Facing these challenges, governments and producers in China’s main coal producing regions have intensified efforts at aid and self-rescue.
A responsible person at the Shanxi Jinmei Coal Conglomerate said that ever since the price of coal has started to slide, users have begun to “select” the quality of coal: “Leaders of our company are investigating market strategies; we are going to expend full effort to raise the quality of our coal, in order to meet the demands of users.”
Some coal experts point out that in addition to appropriate reductions in production, China’s leading coal-producing regions ought to use this opportunity to raise the level of their mining technology and reduce their production costs. Experts point out at the same time that the Chinese government ought to intensify its macroeconomic adjustments in order to manage the quantity of coal production scientifically, appropriately control production capacity, and avoid harmful competition, and to use this coal period to eliminate some low-productivity, ineffective mines.
Wang Hongying, director of the Macroeconomic Research Institute of the Shanxi Provincial Development and Reform Commission, thinks that as the government strengthens its control over production capacity, they should also immediately establish a medium- and long-term coal market warning system, strengthen their ability to forecast supply and demand relationships in the coal market, and at the same time deepen the reforms of the coal pricing mechanisms, reduce investment in transportation, and raise the market competitiveness of domestic coal.
You could read a lot into that if you chose. Among other things, it seems that there are ample opportunities for the Chinese government to tinker with the country’s coal markets in ways that would have adverse effects on coal importers. Overall, our sense is that the future of China’s coal industry—and its interaction with imported coal—is highly uncertain.
That said, a couple of features do seem relatively clear. First, China does not need imported coal, from the US or anywhere else, though the country may choose to obtain it as a way of reducing costs. Second, coal imported into China is, at present, cheaper than domestic supplies, which should have the effect of increasing coal consumption there, both because the prices are lower and because China’s coal consumers have a more diversified supply.
Even more importantly, because of all the uncertainty related to the Chinese coal industry’s technology, supply and demand, prices, and market mechanisms, there is a strong possibility that the coal terminals proposed for the Northwest would not run at full capacity for long periods of time. Indeed, unpredictability and volatility seem to be hallmarks of the global coal trade. That, in turn, would mean that the coal terminals’ promised jobs may not materialize or would be intermittent. It could even mean that much of the region’s infrastructure investment would have been wasted on unnecessary or unprofitable coal terminals.
Needless to say, we have no way to predict with certainty how the Chinese coal trade will play out over the next several decades, but we hope that knowing a bit more about the Chinese side of the equation will help the Northwest make informed decisions.
Stevan Harrell translated the Chinanews.com article from the original. He is a professor of anthropology at the University of Washington in Seattle where his research focuses on China and Taiwan.