China Is World’s Largest Coal Consumer
Coal Bin by Harold Hough
Although China's GDP is only 9.4% of the global economy, and its population is 19% of the world population, it is responsible for 46.9% of the world’s annual coal consumption. And, although much of that coal is coming from Chinese coal mines, their demand for coal is helping the American coal industry.
There are several reasons China is such a large coal consumer. Unlike the US, which uses several sources of energy to produce electricity, coal is responsible for 71% of China’s electrical production. That means any increase in electrical demand immediately pushes coal demand up.
And, electrical demand is growing even faster as China evolves from a third world economy. China’s economy is surging ahead at 9.7 percent GDP growth during the first quarter of this year. However, their electrical demand was up 13.4% according to China’s National Energy Association (NEA). China’s overall electricity consumption is now expected to rise 12 percent this year, up from the 9 percent growth the NEA forecasted in January.
China’s rapidly growing middle class is responsible for much of this growth. As Chinese families grow richer, they acquire a taste for appliances like air conditioners, refrigerators, and home entertainment equipment. In fact, thanks to air conditioner use, China’s Electricity Council is warning of power shortages this summer that may lead to rolling blackouts.
Fortunately for them, China has the third largest recoverable coal reserves – behind the US and Russia. However, coal production hasn’t been able to keep up with demand. As a result, China has been forced to import coal.
One reason China must import coal is that it has few domestic metallurgical coal deposits necessary for high quality steel. China is in the middle of a massive infrastructure building that includes a high speed rail network. As a result, China’s demand for metallurgical coal is expected to be 100 million tons per year. This, in turn is putting a crimp in the metallurgical coal market. Other nations importing metallurgical coal in 2010 included India (30 million tons) and Brazil (14 million tons). Japan, Korea and Taiwan required another 94 million tons. While export demand is expected to increase by 20% in 2011, the supply is only expected to increase by 13%.
This demand is a boon for American coal companies who produce metallurgical coal. In the past Australia has been the chief provider of metallurgical coal for export. But, that is changing. They exported 140 million tons in 2010. However, plans to boost exports by a further 80 million tons a year may not fully materialize due to delays in port expansion and large floods this year. There is also increased demand from Japan, which needs more metallurgical coal to rebuild its infrastructure after the earthquake.
The result is a break for American coal companies that have reserves of metallurgical coal. The New Elk coal mine west of Trinidad, CO is reopening. Toronto-based Cline Mining Corp. purchased the mine last year. The company estimates that when up and running, it will produce 300 million tons of coal a year, roughly three trainloads a week. "That will occur some time after 2011 and then we estimate that we will be mining at that rate for up to 20 years," mine manager Ron Thompson said. The mine will produce metallurgical coal that will primarily be exported to Asian countries, including Japan, Korea and China.
The New Elk Mine isn’t the only American operation expanding its metallurgical coal production to meet Far East demand. Massey Energy recently announced that the company was developing a new mine to produce metallurgical coal in West Virginia. The company will spend between $100 million and $160 million through 2012 at the Rowland reserve