Tweet
As many of you may have noticed, Beijing’s air pollution has gone from crazy bad to something else entirely. It may be of little comfort at the moment to Beijing residents, but it looks like China has hit peak coal consumption. Latest data from the National Energy Administration shows energy consumption for the full year up 5.5% but heavy industry consumption up only 3.8%. Similarly, new construction of coal fired plant is down 10% and capacity utilization at coal plants is a pathetic 56.6%. With utilization rates like that, there is absolutely no incentive to build plants anymore unless they are replacement capex. In contrast hydro, nuclear and wind make up roughly 72% of capex in the industry. Similarly, the CHENTPWR Index on bloomberg of thermal coal plant output appears to have barely breached mid year levels despite one of the coldest winters on record.
Maybe this is entirely too early to call, but if plants built for base load are operating at 56.6% they are not going to be built anymore. Similarly, if growth plans for solar, nuclear and hydro are to be believed then power demand growth has to be strong to not push this utilization lower. No new capacity and flat to lower utilization means flat to down fuel consumption.
The implications of this are not small for a lot of places. Australia and Indonesia export an enormous amount of thermal coal that until recently was sold at phenomenal margins. That business is going to at best flatline and at worst will go into secular decline based on lower fuel demand and competition from Inner Mongolia. Shorting coal names is not going to get boring anytime soon as they are fighting lower revenues, rising costs (wages and diesel, mostly) and further risk that the world just might start to care about climate change now that major economies are switching away from coal anyway and the companies will not have the free cash flow to lobby.
Maybe this is entirely too early to call, but if plants built for base load are operating at 56.6% they are not going to be built anymore. Similarly, if growth plans for solar, nuclear and hydro are to be believed then power demand growth has to be strong to not push this utilization lower. No new capacity and flat to lower utilization means flat to down fuel consumption.
The implications of this are not small for a lot of places. Australia and Indonesia export an enormous amount of thermal coal that until recently was sold at phenomenal margins. That business is going to at best flatline and at worst will go into secular decline based on lower fuel demand and competition from Inner Mongolia. Shorting coal names is not going to get boring anytime soon as they are fighting lower revenues, rising costs (wages and diesel, mostly) and further risk that the world just might start to care about climate change now that major economies are switching away from coal anyway and the companies will not have the free cash flow to lobby.
http://alexbhturnbull.tumblr.com/pos...-coal-in-china
I'm not aware of it if this guy has any authority on the subject, but does his reasoning make sense here?
My thoughts:
- his use of the term peak coal seems to be a bit unconventional; he's not talking about coal extraction rates peaking due to geological constraints, but about it's actual consumption, which can also be a demand-based phenomenon.
- if low capacity utilization in powerplants is due to low demand that probably means China's GDP growth figures are overstated. I doubt this comes as much of a shock to anyone.
- if the effect on Australia's export industries is as predicted, Steve keen might have a bit of a bittersweet field day over this.