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Chinese coal cuts to affect Australia

Feb. 11, 2013 at 4:02 PM   |   Comments

SYDNEY, Feb. 11 (UPI) -- China's projected reduction of coal consumption will have an effect on Australia, experts say.

Estimates by Kieran Davies, an economist at Barclays Bank, show that last year China bought 19.5 percent of Australia's thermal coal exports worth $2.8 billion; 17.5 percent of coking coal worth $3.5 billion and 72.5 percent of iron ore, worth $38.6 billion, Fairfax Media reports.

A report released last month by the U.S. Energy Information Administration said that China accounts for 47 percent of global coal consumption, almost as much as the rest of the world combined."

But research by IHS Cera says that Chinese coal imports reached a high of 145 million tons last year and will decline gradually through 2035. The study predicts that coal demand in China will peak around 2025 at about 5.1 billion metric tons, up from 3.7 billion metric tons in 2011.

Xizhou Zhou, director of IHS Cera in China, noting that the country's shale gas production is likely to begin to take off in the early 2020s, told the Houston Chronicle that China could experience "substantial fuel-switching" in key coal-consuming sectors as natural gas supplies come online.

Last week the State Council of China indicated it would cap coal consumption at less than 4 billion tons, a move that would reduce the price of coal and other resources.

"The expectations in the rest of the world that China would be an ever growing source of imports are going to be disappointed," Australian National University economics Professor Ross Garnaut, a former adviser to the Australian government on climate change and a former Australian ambassador to China, was quoted as saying by the Australian Broadcasting Corp.

A reduction in coal exports to China would reduce Australian incomes and the country's gross domestic product, Garnaut said.

Citing Australia's strong financial growth amid a resource boom, even in the five years since the global financial crisis, Garnaut said, "We will get a share of the diminished rate of growth but it won't be the roaring days of the first 11 years of this century."

"So how far we have to adjust will depend on how far down the terms of trade goes, it's hard to be precise," he said. "But certainly a long period without growth in incomes is ahead of us if we're going to maintain full employment."

China's decision to cap coal usage isn't a surprise, says Australia's coal industry lobby.

"China is already the largest greenhouse gas producer in the world and they have severe air and water pollution problems from their coal fired power stations," Chief Executive of the Australian Coal Association Nikki Williams told ABC.

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