SYDNEY: By any stretch of the imagination, the United States is one of the world’s biggest coal producers. Even after declining by about half since 2008, output last year was still about 527 million metric tonnes, the fourth-biggest total globally.
And yet you could keep all of America’s coal boilers and blast furnaces going until Thanksgiving in 2025 with the reserves of solid fuel that Chinese industries have built up in the last couple of years.
The reasons for the emergence of this vast mountain – 636 million metric tonnes at the end of June, sufficient to cover Singapore in a layer of soot nearly a metre deep – aren’t a great mystery. When stocks ran perilously low in late 2021 and prompted widespread power cuts, Beijing ordered mines and power stations to boost their output and stockpiles so that something similar wouldn’t happen again.
The campaign has been wildly effective: China has accounted for about 97 per cent of the world’s increase in coal production since 2018. Now, however, it has been left with a vast and slowly deteriorating pile of solid fuel.
That’s yet another example of grotesque waste in a country whose slowing growth is increasingly weighing on the world economy.
It’s also evidence that we’re turning the corner on the years when China was the biggest culprit for rising global emissions. America’s diminishing appetite for coal has helped hold back greenhouse pollution over the past 15 years. China’s may do the same, on a far greater scale, over the next 15.
CHINESE COAL STOCKPILE IS SLOWLY DEGRADING
It’s easy to imagine a stockpile of solid fuel as a battery ready to discharge, a vault of gold bullion, or a strategic crude reserve waiting to be pumped out. Coal doesn’t work that way, however.
Instead, it’s more like a silo of corn that degrades and loses value the longer it’s left. Over time, it reacts with oxygen in the air and gradually loses potency. In extreme cases, this can cause stockpiles to heat up and ignite spontaneously. Even in less dramatic cases, a pile can lose about a quarter of its energy content each year.
Thinking about China’s reserves that way helps explain several factors in the market that otherwise seem baffling. For instance, the price of soot at Qinhuangdao used to be the mirror image of the national coal inventory: When inventories were high, prices at the port east of Beijing slipped because supplies were ample, and vice versa.
That relationship fell apart in early 2022. The last time China’s coal stockpile ballooned in the middle of the 2010s, prices were less than half their current level because sellers in an oversupplied market were struggling to offload their carbon at any price.
The best explanation for current elevated costs north of 800 yuan per metric tonne (US$112 per tonne) at Qinhuangdao is that the port’s benchmark is based on relatively high-grade coal, which is not so easy to get your hands on in the China of 2024. Most of that 636 million tonnes in the national inventory appears to have been either low-quality material when it was dug up, or have become so in the months it’s been sitting around waiting for the furnace.
That’s affecting trade, too. Low-grade import coal with 3,800 kilocalories per kilogramme, compared to the 5,500kcal Qinhuangdao product, is currently trading at its lowest levels in three and a half years – a strong indicator that a domestic market awash in poor quality coal doesn’t need to bring any more of it from overseas.
Indonesia, which produces a lot of that lower-kilocalorie product and often accounted for as much as half of China’s coal imports in 2021, fell below a 15 per cent market share in June as consumers focused on higher grades that could be blended with their own supplies to produce a more acceptable furnace feed.
CLOSER LOOK AT CHINA’S COAL USAGE
There’s little reason for climate advocates to celebrate the fact that this inventory isn’t being burned. Coal that’s oxidised in a stockpile will produce carbon dioxide just as surely as the stuff that’s incinerated in a power plant – it just won’t produce any useful energy, a worst-of-both-worlds situation.
At the same time, it gives the lie to some of the arguments about the resilience of China’s coal sector. Mine production has indeed remained pretty strong in 2024 – up more than 3 per cent in June and July, a sweltering period when air conditioning has boosted electricity demand in recent years.
With such an enormous pile of fuel sitting around unused, however, it’s consumption by end users that really matters.
Have a look at the three sectors that account for about 95 per cent of China’s coal usage, and the picture looks weak. Output of cement in the seven months through July fell 11 per cent from a year earlier, and steel was down 2 per cent. Thermal power, the vast majority driven by coal, climbed a scant 0.5 per cent, even before the tidal wave of hydroelectricity now pumping through the grid entered full flood.
You need to make some truly heroic assumptions about demand growth in the tiny remainder of the market to build a bullish picture on those numbers.
To mark the moment before they commence their long descent, climbers often leave a pile of stones at the summit. China’s vast coal mountain looks like just such a cairn, to mark a peak our planet’s climate will be glad to see the back of.