Coal use points to growth
A decreased supply of coal, due to flooding, and an increased demand, from Japanese reconstruction, has caused prices to rise
International coal prices hit $124 per ton this week, the highest levels in five months, as strong demand from reconstruction projects in Japan and reduced supply from flood-ravaged Australia has made coal supply tight. The floods in Queensland, Australia cut the country’s output of coal by 15 percent and other big coal producers such as Indonesia, South Africa and Colombia are experiencing similar production cuts due to floods of their own.Skip to next paragraph
Subscribe Today to the Monitor
At the end of March 31, coal prices were 33 percent higher than a year ago and earlier this month, mining giant Xstrata inked a one-year deal with a Japanese utility at $130 per ton, effectively setting a floor under coal prices in the near-term. That’s up from $98 per ton the company made in a similar deal a year ago.
Perhaps no country is more affected by this development than China. With its economy powering ahead with 9.7 percent GDP growth during the first quarter, Chinese electricity use was up 13.4 percent on a year-over-year basis over the same time period, 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 Electricity Council said the country may face power shortages of 30 million kilowatts during the summer so the government has moved quickly to put restrictions in place as the peak season approaches. Big industrial provinces such as Guangdong and Zhejiang are already scaling back power consumption. These reductions are likely to hinder aluminum, cement, zinc and steel output, according to Macquarie Commodities Research.
In addition, the National Development and Reform Commission (NRDC) called a meeting this week of domestic coal suppliers such as Shenhua Energy and China Coal Energy to ensure stable supplies, the China Daily said.
Coal powers the Chinese economy. The country is the world’s largest consumer, gobbling up nearly half of the world’s coal consumption in 2009. Coal accounted for 71 percent of China’s energy in 2008—more than three times the United States’ share. The Electricity Council estimates that the country’s coal demand will reach 1.92 billion tons in 2011, up nearly 10 percent from 2010.
China hasn’t always been such a glutton for coal. In fact, coal consumption actually declined from 1996 to 2000. However, consumption has shot up 180 percent since then and China accounted for 80 percent of demand growth between 1990 and 2010, according to BP.
This is because demand for electricity exploded over that time. China’s rapid urbanization and rising middle class has led to an exponential number of new refrigerators, air conditioners and other appliances in homes.
Despite the rise in incomes and increased consumer demand, China’s electric power consumption remains relatively low. You can see from the chart on the right that the U.S. consumes roughly four times the amount of electricity per capita than China. The world’s second-largest economy even trails Greece, Poland and Hungary.