China resorts to renewable resources to generate power
For the first six months of 2014, China’s power consumption has recorded an increase of 5.3% on the 2.63 trillion kilowatt hours (or kWh). For the same period, coal used in generation declined year-over-year (or YoY) by three grams per kWh to 317 grams per kWh.
Meanwhile, total generation capacity stood at 1,251.22 gigawatts (or GW)—a 9.4% YoY increase. Out of thermal, hydropower, nuclear, and wind, thermal generation recorded the least growth of 5.4%, while the remaining recorded increase of 14.4%, 21.7%, and 22.6% respectively. This clearly depicts that the country is seeking lower dependency on thermal coal and resorting to other avenues of power generation capacity.
China resorting to renewable energy sources
Despite the fact that China intends to increase the use of renewable energy sources, coal will remain and important energy source to ensure stable electricity supply. However, the Chinese government intends to use domestically mined coal rather than imported coal. Energy demand has been curbed in the country by pollution controls. Factories have been shut in sectors plagued with overcapacity. Lower coal imports are also caused by increased competitiveness of domestic coal and the potential for restrictions on imports of low-grade coal.
For the first half of the year, China’s coal imports increased by 0.9% to 160 million metric tons compared to the 13.3% increase in last year.
The Australian government commented that prices for thermal coal, used to generate electricity, are seen declining in 2015 as demand dips. It estimates that Chinese thermal-coal imports will increase by 3.6% this year and 2.7% in 2015, after recording an increase of 15% in 2013. Slower Chinese imports have hurt coal producers in Australia and made many mines unprofitable. Indonesian miners are also facing a glut as Chinese demand slows down.
If China’s thermal coal imports decline, the dry bulk shipping companies like Star Bulk Carriers Corp. (SBLK), Safe Bulkers Inc. (SB), Navios Maritime Holdings Inc. (NM), and DryShips Inc. (DRYS), as well as the Guggenheim Shipping ETF (SEA) might be affected towards the downside.
However, investors should also keep an eye on India. The country could be on the fringe of multi-year investments in infrastructure. India is expected to face coal shortages over the next few years.