China’s coal imports in January reached 16.1 million tons, a 437.5% year-on-year increase, but down 1.9% from December. In addition to rapidly growing demand for energy – as economic activity picked up, electricity demand rose 40% in January – the rise has been attributed to constraints on the domestic coal supply.
The bulk of China’s coal mines are located in the north of the country, far from the power plants they feed, which are found near to coastal demand centers. Consequently, transport bottlenecks have long blighted the coal supply chain. Consolidation of mines for business, safety and environmental reasons has also placed limits on domestic coal. This explains why, despite forecasts by the Logistics Information Center of China that domestic coal output will reach 3.3 billion metric tons in 2010, the country will remain a net importer of coal. The China Electricity Council has estimated that demand for coal for electricity and heating – not including metallurgical coal – will be around 1.6 million tons this year.
China’s demand for energy, and by extension, imported coal, is a boon for shipping companies as well as coal suppliers. Companies that derive significant portions of their business from dry bulk shipping, such as China COSCO Holdings (1919.HK, 601919.SH), will be particular beneficiaries. However, import growth will be more moderate than might be suggested by January’s figures: such high rates are simply unsustainable.