With the recent reopening of China following extensive COVID lockdowns, Wood Mackenzie believes worldwide coal demand could hit a new record in 2023.
The global research and consultancy company expects the Chinese economy to grow 5.5 per cent this year, with the potential for as much as 7 per cent growth.
This would lead to China having a greater appetite for coal for industrial and energy-generation purposes, but in a base case scenario, WoodMac doesn’t expect seaborne coal prices to surge as a result.
“Chinese seaborne coal imports fell by 38Mt (million tonnes) in 2022,” WoodMac said in its recently released report, The Great Reopening. “The 16 per cent decline from 2021 was largely down to China’s prioritisation of domestic coal production over more expensive seaborne coal and LNG (liquefied natural gas) imports.
“Our base case sees significant growth in China’s coal demand in 2023: 85Mt (4 per cent) in the power sector and 17Mt (1 per cent) in the non-power sector. However, with domestic supply expected to increase by 85Mt, we see only 17Mt of import increases this year.
“As a result, seaborne coal prices remain relatively low, ranging between $US86/t and $US118/t through 2024 (benchmark Newcastle high-ash (HA)).”
Alongside a base case, WoodMac has also forecast high case scenarios, which sees significantly higher potential for coal demand.
“In our high-growth scenario, China sets a record for global coal demand, exceeding 2019 demand of 8512Mt (8.5 billion tonnes),” WoodMac global head of thermal coal markets Natalie Biggs said.
“China (would) still need an additional 49Mt of seaborne coal potentially putting pressure on a market that remains finely balanced and could potentially cause another spike in coal prices.
“Wood Mackenzie sees a 37 per cent increase in benchmark Newcastle HA coal prices over our base case by Q2 2023, to $US151/t.”
The Great Reopening considers the effect of China’s reopening not only on coal demand but on demand for other commodities such as oil, LNG and metals such as aluminium and copper.
WoodMac said property completions are more important than building starts for copper demand, as consumption of copper-based wire is skewed towards the later stages of construction.
“More supportive housing policies in China this year will spill into higher physical (copper) demand by the construction industry for 2024,” the report states.
“A further impact of our high-growth scenario is a boost in demand for copper for appliances and machinery, though to a lesser extent than in construction. Combined, we estimate an additional 215kt (215,000 tonnes) of copper demand, or 1.6 per cent of total consumption, over the next two years.”