There’s mounting evidence that the Northwest coal export plans are on shaky ground in no small part because of what’s happening in China.

China, which accounts for about half of the entire world’s annual coal consumption, is also the world’s top importer. To a very large extent China drives the global coal trade. But as a flurry of recent news accounts reveal, China’s demand for coal is weakening—and it’s sending shockwaves throughout the industry.

Here are a few key trends to watch.

Chinese demand for coal is down. The government is urging Chinese mining firms to rein in production as unused coal stockpiles grow and prices fall in tandem with a struggling national economy. Major newspapers in China are reporting that “the outlook is not rosy for the coal industry.” And in fact, China’s largest coal producer posted a 7 percent drop in profits in the third quarter.

China is going green. One of Australia’s top economists, Ross Garnaut, recently erupted over the “blind belief” in China’s unquenchable thirst for coal imports. He points out:

China had exceeded its ambitious emissions targets, cutting coal-fired generation by more than 7 per cent in the past year. A rapid expansion in hydroelectricity, wind, biomass, solar and nuclear power had pushed down coal’s share of energy production from 85 to 73 per cent.

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  • Competition from natural gas. As in the United States, China’s age-old coal habit appears to be under threat from natural gas. Natural gas imports from Central Asia are up by a third, year over year, while high prices suggest strong demand. Meanwhile, China is poised to get into shale gas in a big way with scores of companies bidding on domestic exploration rights. What’s more, Reuters reports that China is exploring coal gasification in remote parts of the country.

    Imports are down. According to official state sources, September’s coal imports were down by nearly 19 percent on a year-over-year basis. Or maybe it was closer to 22 percent. (Chinese data reports are notoriously unreliable, which should put some caution in would-be investors.) Regardless, it appears that coal imports have fallen to a 15-month low.

    One contributing factor is that China’s banks are pulling back on lending to coal traders. Prices are falling while the number of overdue loans is climbing.

    Coal exporters are struggling. Indonesia is a major coal supplier, but China’s slowdown is cutting deep into its industry. The world’s other major coal exporter, Australia, is also taking a hit where at least one mining company there is planning to temporarily shutter operations. And the pain is already arriving in the US. As one outlet reports, “US producers of coal used in steelmaking have been seeing once robust exports slow to a trickle.”

    There’s an object lesson here, one that history should have already taught the West Coast. Twice before—in Portland and Los Angeles—communities gambled that a supposedly insatiable Asian demand for coal would justify big new export terminals.

    In both cases, the bets went bad.


    For more on this subject, please see Sightline’s October 2012 report, “US Coal Exports and Uncertainty in Asian Markets.”

    This post benefited from contributions by Clark Williams-Derry, John Kriese, and Stevan Harrell.