Growth in global thermal coal consumption is slowing fast.
According to CBA commodity researchers Vivek Dhar and Kofi Mensa, global demand, excluding the GFC period in 2009, is now growing at the slowest pace seen since 1999.
“BP estimates that world thermal coal consumption lifted 0.4% y/y to 3.88Btoe (billion tonnes oil equivalent) in 2014, slowing from 1.8% y/y growth in 2013. Excluding the GFC in 2009, the growth in world coal demand was the slowest since 1999. China’s coal consumption, which accounts for just over ~50% of world demand, rose by 0.1% to 1.96Btoe last year. India’s thermal coal demand advanced 11.1% y/y to 360Mtoe in 2014”.
Here’s a chart that provides a visual perspective on the slowdown.
On reduced demand from China the pair believe that two-thirds is due to slowing Chinese economic growth while the remaining third can be “attributed to loss of market share, as energy-intensive industries such as steel, iron ore and cement slow down to a greater degree as China seeks to rebalance its economy towards services and consumption”.
Vivek and Dhar suggest India will drive global demand in the short term although, as a consequence of slowing Chinese imports, prices are likely to remain depressed.
“While China’s coal demand was muted in 2014, India’s coal consumption lifted materially. India’s coal shortage widened to a record 116.7Mtoe in 2014, up from 95.5Mtoe, as consumption outpaced domestic supply. Increased demand from India’s power sector was a key factor in the lift in India’s coal consumption. We believe India will be the main driver of thermal coal import demand in the short term but that headwinds from slowing Chinese demand will likely continue to weigh on seaborne thermal coal prices”.
As the world’s fourth-largest coal producer globally, and a major exporter, slower global demand amid a backdrop of depressed prices will almost certainly have an economic impact on Australia.