China Faces Coal Shortages in 2012 amid Strong Demand: Shenhua Official

Dec. 5 (Platts) -- China will continue to face coal shortages in 2012, amid strong local demand and limited coal transportation capacity, said Huang Qing, board secretary of China Shenhua Energy Co Thursday.

Huang was addressing the 2012 China Galaxy Securities Investment Strategy Seminar held in Sanya City of Hainan Province on Thursday.

Coal demand looks set to grow steadily in line with China's urbanization, industrial growth and its reliance on thermal power.

China's urbanization rate grew from 19.4% in 1980 to 46.6% in 2010 and is expected to grow to about 51% by 2015, Huang said.

While a report by UOB Kay Hian, released Thursday, noted that thermal power generation for the 10 months to October rose 15.2% year on year, exceeding the 11.4% year-on-year growth in the national power output for the period.

The key reason for the spike in thermal power generation, according to the UOB Kay Hian report, was an 8.2% year-on-year decline in hydropower generation during the period. The continuous shortfall in hydropower generation has been made up for by the acceleration in thermal power generation which has underpinned demand for thermal coal.

China remains over-reliant on thermal power generation, which accounts for 82% of 2011's total power output, the report said. This makes the government target of reducing thermal power generation to 70% of total power output by 2015 unachievable.

COAL IMPORTS TO REMAIN RESILIENT IN Q1 2012

China's annual coal imports for 2011 are estimated by UOB Kay Hian to stay flat from 2010 around 165 million mt. For the remainder of 2011, there will be a further slowdown in imports due to the high port inventory build-up as seen in Guangzhou port from September up to the present day (allowing for around 1-2 months lead time for coal imports).

The report also expects China's coal imports to remain resilient in the first quarter of 2012, as coal traders have already started to inquire about coal shipments for Q1 2012.

Huang, meanwhile, estimated China's annual coal imports would reach 200 million mt in 2012.

While the UOB Kay Hian report said China's annual coal imports may reach 300 million mt by 2015, growing at about 15% annually.

Logistic bottlenecks and insufficient railway networks for outbound shipments from western coal-producing provinces to end-users in eastern and southern China will continue to make China's domestic spot coal uncompetitive to imported coal, the report noted.

SHENHUA PLANS TO INCREASE COAL OUTPUT

To cope with the coal shortages, China Shenhua Energy Co. will push ahead with its globalization strategy, Huang said.

China's crude coal output has seen a steady growth in the past few years, but the increased tonnage mostly has a low heating value, Huang said, without giving further details.

Over January-October, China mined a total of 3.113 billion mt of coal, up 337.66 million mt or 12.2% year on year.

China Shenhua Energy plans to mine about 10 million mt/year of coal from its Watermark coal mining project in Australia's New South Wales by 2015 and also mine about 10 million mt/year of coal from the Beringovsky coal field in Northeastern Russia's Chukotsky Avtonomnyy Okrug in the near future.

Additionally, Shenhua also plans to acquire more coal reserves from Mongolia and Africa.

China Shenhua Energy Co., the listed subsidiary of China Shenhua Group, produces mostly thermal coal from its operations which are located mainly in Inner Mongolia and China's Shaanxi province.