Will changes in China's economy impact US coal producers?

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Part 2
Will changes in China's economy impact US coal producers? PART 2 OF 13

Must-know: China’s additions to its power generation capacity

Simply massive

In the previous part in the series, we discussed why China is so important for commodity producers. China had an installed capacity of ~1,260 gigawatts (or GW) as of June 2014. China has the highest installed capacity. It’s followed by the U.S. with 1,040 GW.

The installed capacity has grown 10.8% every year over the last decade. It adds 80–90 GW every year—this is equal to the United Kingdom’s entire installed capacity. China produced 5.4 trillion Kilowatt hours (or Kwh) of electricity in 2013—compared to 4.1 trillion Kwh produced in the U.S. However, due to a massive population of over 1.36 billion, China’s per capita annual electricity consumption is low at 3,900 Kwh. It’s less than one-third of the consumption in the U.S. (SPY).

Must-know: China&#8217;s additions to its power generation capacity

Must-know: China&#8217;s additions to its power generation capacity

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Consumption pattern

Around 72% of China’s total electricity goes into powering its manufacturing. China is known for its massive factories. A large part of industrial electricity consumption—81%—corresponds to heavy industries like shipbuilding. This is different from the U.S. consumption pattern. In the U.S., only 26% of the total electricity consumption goes into powering factories. The remainder is consumed almost equally by the commercial and residential sectors.

Why the pattern is different

China is the world’s factory. Everything—from Apple (AAPL) phones to General Motors’ (GM) cars—is produced in China. It offers a cost and scale advantage. Also, China is the largest steel producer. Electricity is required to run factories. China’s massive factories require huge amounts of electricity. As a result, most of China’s electricity is used to power factories.

In contrast, the U.S. economy is driven by consumption and services. Households in developed countries, like the U.S., commonly use electrical appliances. As a result, commercial and residential electricity consumption is higher in the U.S.

China’s massive power generation sector requires an equally massive amount of fuel. What powers China’s power plants? Where does coal fit in? What opportunities does China offer for U.S. coal producers like Cloud Peak Energy (CLD) and Peabody Energy (BTU)? We’ll discuss these topics throughout this series.

Visit the Market Realist Coal page to learn more about the industry.


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