U.S. Coal Entities Eye on Chinese Market

In recent years， an increasingly larger area of China was hit by the smog. This is definitely bad news for local people， but it might turn out to be a good thing for the U.S. coal enterprises.

In the west coast， there are raging voices blaming the coal for the climatic change and traffic jam. This has reduced the demand of U.S. enterprises for the coal， forcing the coal enterprises to turn to the exportation and overseas markets.

They set their eyes onto China， which boasts the amount of coal consumption that is as big as the total amount of the other countries in the world. However， China is promoting its plan of clean energy， including the limitation on carbon emission and the construction of new type of thermo power plants， even though the changes cannot be realized as quickly as expected by the environmentalists. China is also planning to stop the construction of the steel plants that could consume a large amount of coals.

The rising boycott against coal in China and U.S. is posing a threat to the ambition of Peabody Energy， Arch Coal and other U.S. coal enterprises to expand in the global market. In spite of the slowed growth in Chinas demand for coal， the huge economic volume of China still means that China has a huge need for coal in the next ten years. Therefore， the U.S. coal enterprises are still eager to pursue the potential in this market.

The Limited Demand of China

China is now planning to reduce the proportion of coal in the total energy to below 65% by 2017. After 2030， no new coal-based power plants will be established in China. The installed power-generating capacity of clean energy is expected to reach 2.48 billion kilowatthours by 2050， accounting for 62% of the total installed generating capacity. The Chinese government is studying into more plans about limitation in coal consumption.

With the rising demand and declining supply domestically， China for the first time turned from a coal exporter to an importer in 2009. The growth rate of its need for imported coal is only second to that of the UK.

Trevor Houser， former advisor to the U.S. Department of State， said： “In the future， China might not be such a grand buyer of imported coal.”

“In his opinion， the demand of China for coal might meet a drastic decrease， especially in the coastal area where there are strong anti-pollution policies，” Houser said. “If the western part of China takes the similar policies， the coal exporter in the U.S. will not be a match for the domestic coal producers in China. Now， there is an obvious trend； the center of power generating of China is moving from the eastern part of China to the western provinces.”endprint

“For companies like Peabody Energy and Arch Coal， the decreasing demand for coal in China and the gradual move of the demand to West China are naturally great risks， but the greater risk lies with the possible undermining of the pricing power of U.S. coal companies in Asia. In another word， even though your sales volume remains the same， the price will be definitely lower than before.”

Still Betting on China

In spite of these difficulties， the U.S. coal enterprises are still enthusiastic for the Asian market. Hal Quinn， CEO and president of U.S. National Mining Association， said that the global demand for coal is expected to rise stably and the Asian market is going to take an in-creasingly bigger proportion.”

Though half of the exported coal from the U.S. is sold to Europe while the Asian market only takes one quarter of the U.S. exported coal， Asia has become a fast-growing market for U.S. coal enterprises

In spite of the slowdown of Chinas economic development and shift to the clean energy， China is still a big coal consumer in the next dozen of years. The huge economic volume of China means that the slowdown of economic development is hard to reduce the utility of electric power. According to Bloombergs 2013 Financial Report about New Energy， the power generating in China will double by 2030， in which the contribution of coal， in spite of the decrease， is still as high as 58%.

The urbanization plan of China also fixed the goal of turning about 100 million peasants into urban citizens be- fore 2020. There is also a huge network of transportation of railways and expressways. Both will be the catalysts for the output of steel and electricity， and big consumers of coal.

Importation Cheaper than Local Made

Liang Jiakun， vice president of China Association of Coal Industry， said that the total coal consumption in China amounted to around 3.6 billion tons in 2012. The total demand is expected to reach 4.8 billion tons or so by the year of 2020.

The growth in the next few years before 2020 is 50% slower than that of years ago， but the Chinese market is still as appealing for the U.S. coal enterprises thanks to the reasons mentioned above.

Peabody Energy， the largest listed private coal enterprise， saw 10% of its global revenue come from China， at least 7 percent higher than two years ago.

Arch Coal previously targeted the South Korean market only in Asia， but now it is eyeing China， expecting the Chinese market to be one of its biggest international markets. It set up a representative office in Beijing last year. This April， its CEO Gregory Boyce said to investors that the increasing transportation and labor cost are driving more Chinese enterprises to import more coal from foreign countries.

Though China has the third largest reserve of coal in the world， most of the resources are found in central and southeastern part of China. It is still very costly to transport the coal from these places to the industrial centers in coastal areas of China or the emerging cities in West China. Here comes an apparently cheaper alternative - the coal from the U.S.， Australia and so on.endprint