Coal Will Remain Important to China
For the reasons described above, thermal coal demand faces a substitution challenge within the Chinese generation mix. According to Bloomberg data, thermal electricity generation (which is a proxy for thermal coal demand) as a share of Chinese total generation still remains dominant at 58%.
While coal’s percentage share of China’s energy mix is set to dip, the total tonnage of coal consumed is still expected to rise.
China also remains the largest consumer of coal in the world, and is expected to reach consumption of 4.3 billion tonnes of coal in 2015. China is also expected to consume nearly a billion tonnes more coal per year by 2020. All of these suggest that demand for high-quality coal imports will continue to be strong.
In addition, although China is the largest coal producer in the world, it became a net importer of coal in 2008. Chinese imports of coal account for approximately 15% of all globally traded coal.
For these reasons, Evernal will continue to maintain an opportunistic focus on its established coal procurement business line in the medium term.
The Group's Coal Procurement Focus on Southern China
Evernal’s coal procurement activity is more specifically focused geographically in Southern China, Guangdong Province in particular.
Guangdong has traditionally been the largest coal importing province of China.
In contrast. China’s coal reserves and production hubs are located in the North and West of China, which have approximately 70% of the country’s proven reserves.
This creates a logistical issue in transporting Chinese coal to Southern China.
Rail and truck capacity to supply coal to Southern China cannot currently meet demand and is also expensive. As a result, coal from the North and West of China is usually firstly transported by rail to coastal ports in the Northeast for shipment. Although this is a cheaper solution than the rail/truck solution, transport costs can still be comparatively high.
This high cost of moving coal to the industrialised areas of the Pearl River Delta and the Yangtze River Delta drives coal imports in South China. South China is also the closest region in China to two major coal exporting nations, Australia and Indonesia.
For these reasons, Evernal is focusing on these two coal exporting nations, particularly Australia, as the source of its coal procurement in the medium.