Ch4: The Rise & Rise of China's Coal Business

Prepare to be astonished by the colossal tale of China's coal industry, a saga of energy, economy, and environmental impact.

In 2023, global coal demand has hit a record high of an estimated 8.42 billion tons, with China leading the charge, consuming as much as 55% of it.

And, China has not just been the largest consumer and producer of coal, but also the largest importer of black gold- Accounting for a third of the global coal imports.

Thus, practically, we live in a world where any jump or fall in Chinese demand ends up being the true determinant of the prices at which coal is traded worldwide.

Let’s dig deeper!

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The Rise of China's Coal Power

China's journey with coal began nearly 6,000 years ago, with the first significant surge in coal mining and consumption occurring in the 11th century due to a timber shortage.

Fast forward to the late 20th century, China was predominantly using risky and messy shaft mines, particularly in the northern regions. This rich history paved the way for what became the backbone of modern China's industrial revolution.

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Entering The 21st Century

• Entering the 21st century, China's coal consumption underwent a dramatic transformation. So much, so that compared to a billion tons of annual coal production in 2000, China has today scaled that up a strong 4.5 times!
• Meanwhile, its consumption has skyrocketed a whopping 6.5x during the same time frame. At the India scale, picture that China consumed as much coal 23 years ago, as all of India does today. Mind-bogglingly big!
• And the fact that coal production’s 4.5x growth has not kept pace with the consumption’s 6.5x growth has led to a massive 7x surge in China’s coal imports over the same time.

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Imports as a Strategic Choice

Unlike in India, where we have had a case of rising coal imports due to coal miners not increasing production in sync with the growing demand, China’s case is a different one.

• Much of China’s coal reserves lie in the tough terrains of the Northern region, which is way far off from the demand centres along the Coast and the South of China and is also tougher to mine.
• To move coal mined in the North closer to the demand centres by land or rail is a very costly operation, which would impact China’s power prices and industrial competitiveness.
• That is why the country actually prefers to import large volumes of coal from nations like Indonesia, Australia and Russia via the sea, which land coal right at the ports of places where the demand lies!

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Comparison with India and the US

Comparing China's coal industry to the United States and India also paints a striking picture.

• While the U.S. saw an 8% decline in coal demand in 2023, China's demand rose by 4.6%. Meanwhile, driven by a heightened demand for coal, India saw an estimated 9% or so jump in the demand for coal. The diverging paths of these major economies highlight the varying energy policies and economic dependencies on coal.
• But, as mentioned above, India today consumes as much coal as China did 23 years ago. Thus, despite India’s coal demand rising way faster and consistently, it remains way smaller in scale.

Thus, that picture is something to keep in context.

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The Titans of Coal Mining

Meanwhile, as in India, there is one common thread between the coal industries of the two nations.

• As in India where the Govt-owned Coal India owns much of coal mines and production, in China too, much of the coal mining industry is dominated by state-owned enterprises.
• Just take the case of China’s 10 largest coal miners. Nine out of the 10 are owned by the Chinese Government or the provincial governments. In fact, 18 out of the top 20, and 28 out of the top 30 Chinese coal miners are all state-owned enterprises.
• Thus, it’s evident that as the Chinese Governments and policymakers saw the country rise in terms of manufacturing, real estate, standards of living and power consumption et cetera, they took it into their own hands to feed those needs with as much black gold needed.

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Digitally Ahead!

But what stands out is the fact that China’s making big investments into digital transformation of its coal mining industry.

• If you find some time, just do a Google search for the Hongliulin "intelligent mine" in Shaanxi province.
• Much of the mining there is controlled via machines that miners operate via smartphones which are fed with data from a host of sensors and cameras that are connected in real-time via 5G technology.
• This digitalization has improved safety and increased output per shift by almost a third.

A whopping third!

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Economic Impact

However, concerns remain about the environmental impact of continued coal use.

• As Chinese coal consumption continues to experience healthy growth, its record-breaking annual output and increasing imports are driving international pressure to address the associated environmental problems linked to its coal industry which is estimated at an annual market size of a whopping $93 billion.
• The biggest issue is that despite China’s unbelievably aggressive solar and wind energy installations, coal accounts for about 57% of its energy consumption which drives it to the slot of the world’s largest coal consumer with about 55% share.
• The World Bank Group thus emphasised a few months back that despite its massive renewables push, China needs fundamental changes in energy, industry, transport, cities, and land use to achieve carbon neutrality by 2060, as targetted by the Chinese Communist Party.

The good thing is, that even as transitioning to a low-carbon economy will be challenging, it opens new avenues for development and job creation in green industries.

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Recent Policy Shifts and Future Outlook

Meanwhile, being closer to the ground and aware of the national needs, China has been announcing massive new coal-fired power plants year after year.

• This means, they are building out solar and wind capacities aggressively, but are not giving up on thermal energy either. And this shall keep the demand for coal on an uptrend in China.
• And the continued investment in coal infrastructure, despite the environmental costs, reflects the complex trade-offs between economic growth, energy security, and climate change commitments.

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Conclusion

In conclusion, China's coal industry is not just an energy story; it's a narrative interwoven with economic growth, environmental challenges, and global implications.

As we move forward, the decisions made by China in the coal sector will continue to shape the global energy landscape and our collective future.

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See you tomorrow morning 7.30 am with another edition.

Best,

Jayant Mundhra?