Saturday, May 8, 2010

China and Coal

For a long period of time, China was predominantly an exporter of coal. However, this coal consumption pendulum has swung from an exporter to an importer of coal. This has pushed up the price for coal. According to golbalCoal (an international trading platform), the benchmark price at Australia's Newcastle port for the type of coal burned at power plants (thermal coal) hit $108 a metric ton, which is the highest price since October 2008.

This shift from exporting to importing coal began last year. In fact, China's imports of coal jumped 165% from March 2009. It seems this level of consumption will remain. Even though China has been pushing for alternative energy solutions, such as wind and solar, 70% of China's electricity comes from coal-fired power plants. This is demand is expected to expand by 10% for this year.

There have been a variety of factors that have created China's demand for foreign coal. There has been a drought in southwestern China, which has made the rivers too low to power its hydroelectric dams. Also, there have been several mining accidents that have slowed production as the government is cracking down on safety violations. However, it is possible that this pendulum may swing back to China being an exporter of coal. But, one thing remains certain is that China's demand for coal will increase as it continues to run its factories to supply products to the world economy and also to its growing middle class. China needs a lot of electricity to run these factories and coal still remains the primary source of to create such electricity.

Data Source: Wall Street Journal.

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