Lights Out! Opportunity Shines in China’s Coal Crisis

Lights Out! Opportunity Shines in China’s Coal Crisis

Despite a global push for reduced carbon emissions, energy crises facing countries like China and India are driving demand for coal. Can US producers facing a dying domestic market seize the opportunity?

Climate Concerns

China has historically invested in developing electric power capacity (including coal-fired plants) on the African continent, as well as in countries such as Pakistan, Indonesia, Bangladesh, and Vietnam, among others. However, in recent years, China has shifted gradually away from its practice of building coal-fired power plants in other countries. On October 18th, the country officially declared to the UN General Assembly that no more plants would be built overseas. On the outside, this seems like a decision made to assist in global efforts to reduce carbon emissions.

However, the country is currently facing an energy shortage at home, and the domestic response doesn’t seem to align with global emissions goals stated to the UN General Assembly. The presence of so much competition for limited coal supplies is amplifying supply issues, and the weakness of China’s alternative energy market is driving intense demand for coal.

Low Power

In recent weeks, the high price of coal has driven China to ration power inside the country. Due to the ongoing economic recovery following COVID-19 shutdowns and the need to increase industrial and manufacturing output, the country is straining to maintain an ample fuel supply. As a result, the country has enforced power cuts – generally from a few days to a week at a time, but sometimes extending beyond a week. Such cuts impact both residences and industrial facilities, compounding the country’s inability to rapidly recover.

To ease the strain, China recently announced it would open all coal mines in the country at full capacity and begin development of new facilities – an apparent reversal in its climate policy promises and efforts to develop more robust renewable energy alternatives.

An Opportunity Arises

In the meantime, China has ended imports of Australian coal following the latter’s criticism over the COVID-19 pandemic. Though some has been allowed to be released from customs hold this month, the country still seems hesitant to rely on Australian coal imports – particularly when India faces a similar energy crisis, further weighing on supply in the region. This has immensely strained China’s supply of coal for both manufacturing and power generation, opening the door for other coal exporting countries, such as the US or Russia, to seize the opportunity.

With the global economy reeling from ongoing manufacturing and shipping disruptions, US coal companies are likely to be happy to ease some of the strain on the Chinese coal supply. Despite the ongoing trade war and the US’s previous assertion that China caused the pandemic, US coal exports to China swelled in August as Australian imports ceased. Expect US coal firms to increase production in the short term, as a long-term continuation of China’s anti-Australian coal sentiment is unlikely.

Want to Learn More?

Don’t worry, we have you covered! For additional information and analysis of US industry trends, see Coal: United States, a report published by the Freedonia Focus Reports division of The Freedonia Group.

You can also check out some of our related reports, which include:

About the Author

Chris Dyer is a Market Research Analyst for Freedonia Focus Reports. He holds a Master of Arts in Security Studies, and his experience as an analyst covers multiple industries.