China’s plan to raise coal production by 3.3 percent this year is at the bottom end of analyst expectations and could open the door to another huge boost in imports, if demand overshoots domestic supply.
The 2010 national economic plan issued by the National Development and Reform Commission on Friday put the year’s raw coal output at 3.15 billion tonnes, up from 3.0 billion in 2009.
“That’s very modest,” said Ghee Peh, an analyst at UBS in Hong Kong, who forecasts output of about 3.2 billion tonnes.
He described the NDRC target as a low-ball number that would probably be exceeded.
“The real question now, from an analytical point of view, is whether demand is going to exceed 3.2 billion tonnes, and by how much. Then this will have huge implications for imports of energy.”Because China consumes so much coal, even a small shortfall in domestic supply can trigger a huge import surge.
That’s what happened last year, when China’s top coal province, Shanxi, shut down small and inefficient mines, while demand from steel mills and power generators rose. Import volumes more than tripled and China flipped from 5 million tonnes of net exports in 2008 to 103 million tonnes of net imports in 2009.
Standard Chartered coal analyst Judy Zhu said lower coal output could reduce China’s reliance on the domestic market and increase the need for imports.
“Generally we still expect China to be a very strong importer of coal this year,” she said.
Many analysts expect China’s coal demand to track wider economic growth, forecast at 9.5 percent by a Reuters poll.
China’s main suppliers of coal last year were Australia, Indonesia and Vietnam, but China’s relative hunger for imports and low global freight rates spurred shipments from as far afield as the United States and Canada.