Coal Rush: The Future of China's Coal Markets

In response to the country’s importance to world energy markets, IHS CERA is undertaking a groundbreaking Multiclient Study, Coal Rush: The Future of China’s Coal Markets—which will be the most extensive research on this market available, providing detailed data and analysis on coal supply, demand, and logistics.

This study focuses mainly on steam coal and covers metallurgical coal where appropriate. Our scenario-based approach offers a clear view of plausible futures for all aspects of the highly complex coal market structure in China, including coal resources, production trends, cost of production, and coal quality at the national, regional, and field levels. We also address critical issues such as transportation bottlenecks and logistics cost, regulatory processes, and demand by key sectors. Technological developments, such as coal by wire, and other advances are also evaluated in the context of three potential scenarios for the coal market, each with an outlook to 2035.

The analysis will be fully integrated with the IHS CERA existing coverage of the oil, gas, and power markets and leverage the expertise and capabilities from the wider IHS organization, including but not limited to, McCloskey, IHS Chemical, IHS Global Insight, and IHS geological databases.

Key Questions to be Addressed:

• The Chinese government has a policy of economic re-structuring – this will move the economy away from heavy industry. What is the implication for coal supply and demand?
• How will the Chinese energy mix evolve given the increasing affordability on energy price and pressure on environment and sustainable development and what are the implications for domestic demand?
• Are the key issues in the Chinese coal sector fundamentally economics driven, or are they the result of regulatory, policy, pricing, infrastructure, or other distortions that are less predictable?
• Transport restrictions seem endemic and continuous. Is there something systemic in the planning and implementation of infrastructure in China that means it is likely to remain a challenge to coal supply and imports over the long-term?
• Current and the coming driving forces and restrictions of steam coal imports are obscuring future import trends. How large is the import potential? Who will be the likely competitive importers into China? What types/quality of coal will be in high demand? And what price levels can be expected?

Steam coal coverage by type:

• Thermal
• Lignite
• Coking coal (as it affects the steam coal market)

Benefits:

Coal Rush: The Future of China’s Coal Market is a must-have for any company whose value chain is directly or indirectly impacted by the Chinese coal industry. The deep and extensive expertise at IHS provides unparalleled capabilities to help clients understand the rapidly changing dynamics of this key industry in an important part of the world.

Coal Rush: The Future of China’s Domestic Coal Markets multi-client study will be conducting following the HIS CERA proven workshop study method where clients are able to influence the scope of the study. Since we will be undertaking a large project making sure that we receive clients perspective and key industry input is critical for putting together a truly ground breaking study on the future direction of China’s Domestic Coal Market and their effect on the broader global coal market. For that reason we will hold several workshops and webinars to make sure charter participants have the ability to influence the scope of the study.

Timeline for Deliverables

Step 1 – Kick-off Workshop and Conference Call (May 2012) 

This workshop and conference call will be conducted from Beijing and will include a presentation of our initial assumptions, review of our methodology, and some preliminary modelling result. A key component of the workshop process is an open discussion where participant input is a key component of the scope finalization process.

Step 2 - Mid Project Webinar (July 2012) 

Gathering input from clients at various points in the research process is important to make sure that the research incorporates industry perspective. At the mid-project webinar we will present our initial findings and seek feedback from participants on the research. At this stage of the process client participation is critical to shape the final report.

Step 3 – Final Report Presentation (September 2012) 

We will hold a final report presentation to go over the conclusions and datasets. The final report will be released in October 2012.

• Three sets of PowerPoint files for the kick-off, mid-point, and final workshops
• Detailed Excel datasheets for supply and demand results (see Study Scope)
• Final report in PDF format, comprising Executive Summary and five chapters

Supply: Focus on 100 Key Producing Units

For this study, IHS CERA takes an unprecedented deep dive into coal supply in China. To provide the most comprehensive supply outlook, we are dividing Chinese production into about 102 typical coal production units according to coal types, ownership, scale, mining method, and quality. Focusing on the production units enables us to provide study members with the most meaningful view on coal supply and demand in a highly fragmented marketplace.

Due to the vast coal resources and high production volumes over a massive land area, it is crucial to define the unit of analysis when evaluating coal supply in China. For instance, one productive coal field in Shanxi Province could have higher volumes produced than another province, e.g., Jiangsu. The various fields in Shanxi also have very different characteristics and thus cost levels. Therefore, if the unit of analysis was defined strictly at the provincial level, the differences that exist in many of Shanxi Province’s highly productive fields would not be captured. This is one of the most challenging aspects of analyzing a large and diverse coal market.

To address this key challenge, IHS CERA will identify around 102 key production units in the country—be it a region, a field, or enterprise—for our supply analysis. A particular production unit will have similar type of a coal (based on thermal or metallurgical, for example) and have similar production costs, regardless of how large the area is. An example, in considering the key production area of Central Shanxi Province, the study divides the area into six production units based on the above criteria:

• State-owned thermal coal
• State-owned premium hard-coking coal
• State-owned metallurgical coal
• Locally-owned large thermal coal
• Locally-owned premium hard-coking coal
• Locally-owned large metallurgical coal

In other cases where a province produces minimal volumes, they are discussed at a regional level.

The study also reports the current reserves of the key production units:

• Current reserves, by coal type
• Geological conditions
• Coal quality – calorific value (CV) and sulfur content
• The IHS CERA estimates of true reserve figures

Analysis of Key Production Units

The study examines the production and operations of these units and provides outlooks to 2035:

• Capacity and volume by coal type
• Coal quality and its evolution
• Detailed mine gate cost breakdown (labor, power, materials, maintenance, safety, overhead, tariffs)
• Local taxes and charges analysis
• Washing ratio
• Washing yield of cleaned coal and middlings, together with CV

Enterprise-Level Analysis: Map-Based Database

The study provides profiles of the largest 10 Chinese coal companies:

• Development plans by enterprise
• Cost of production
• Market outlook

Transportation Analysis: Focus on Regulatory and Infrastructure Issues

To develop an understanding of existing supply constraints and costs, Coal Rush: The Future of China’s Coal Markets examines the transportation and logistics of China’s coal infrastructure. This section of the study covers

• Local logistics—coal to rail
• Assessments of main modes of transportation by major coal producer
• Rail sector
• Loading and unloading port capacity
• Inland water and trucking
• Cost analysis of the linkages of supply chain
• Government and third-party changes
• Cost curve of delivered domestic steam coal based on selected ports and inland cities

Demand: Outlook for the Key Coal Sectors by Region

IHS CERA integrates coal demand with our ongoing research and scenario-based outlooks for key end-user markets. Integration examples include:

• Integrated power market outlooks on a provincial level (IHS CERA Electric Power team)
• Industrial production growth outlooks for key sectors (IHS Global Insight Industry Analysis team)
• Coal used as feedstock in the chemical industry (IHS Chemical’s Coal Chemical team)

Seaborne Traded Steam Coal Analysis

China is increasingly affecting the seaborne traded steam coal market. The study’s global steam coal research includes:

• Supply potential and cost of international supply (IHS CERA Global Steam Coal Advisory Service)
• Cost curve of steam coal with international supply, combined with infrastructure analysis, to evaluate import potential
• Seaborne coal price forecast in key regions

Study Team

Coal Rush: The Future of China’s Coal Markets multi-client study will leverage the capabilities of IHS experts within IHS CERA, McCloskey, IHS Chemical and IHS Global Insight as well as China-based data provider Xinhua Infolink to provide the most comprehensive assessment of China’s domestic coal markets and their impact on the global coal market.

Project Directors:

David Price, IHS CERA Senior Director, is the head of the IHS CERA Global Steam Coal Advisory Service. He is also editor of IHS McCloskey’s Steam Coal Forecaster and Coal UK. Mr. Price leads the IHS team on coal during the development of the group’s global energy scenarios. He has been the author and lead editor of many special reports on the coal industry, covering global and regional supply and demand; fuel supply chain analysis for power generators, industry, and investors; contractual frameworks; and environmental considerations. Mr. Price, who has been with McCloskey for close to 20 years, has been the editor of Coal UK since 1992 and of Steam Coal Forecaster since 1996. McCloskey was acquired by IHS at the end of 2007. Before joining McCloskey he was manager of the international coal trade service at WEFA Ltd., where he authored major multiclient studies on the international coal markets and re-established the consulting service with both government and industry. Previously he was the senior market analyst of the dry bulk trades at Drewry Shipping Consultants Ltd. Mr. Price has spoken at conferences and conducted investor briefings around the world. He holds a BSc Hons from Birkbeck College, University of London.

Xizhou Zhou, IHS CERA Director, leads the IHS CERA China Energy practice and specializes in gas and power market fundamentals and policy analysis. Based in Beijing, Mr. Zhou is a core member of the IHS energy research and consulting team in Asia. He is the author of numerous IHS CERA reports and has managed a variety of consulting engagements. Mr. Zhou’s latest research includes contributing to the IHS CERA Multiclient Study Unconventional Frontier exploring the future of shale gas and coalbed methane outside North America, as well as leading the analysis on the causes and likelihood of future power shortages in China and the implications for the wider energy markets. Prior to joining IHS CERA Mr. Zhou was a consultant engaged in regulatory and energy economics projects at Industrial Economics, Inc. in Boston. Earlier in his career he was a research analyst at the World Resources Institute in Washington, DC, where he focused on energy and transportation in developing Asia and Latin America. Fluent in Mandarin Chinese and proficient in Spanish, Mr. Zhou holds Bachelor of Arts and Master of Environmental Management degrees from Yale University

Paul Pang, Senior Director, IHS Chemical, has more than 25 years of experience in the petrochemical industry in various areas, including technology, operation, process engineering, business planning and consultancy. He currently serves as Senior Director with IHS and heads IHS Chemical China.

Prior to this role, Mr. Pang served as Managing Director of CMAI China, and Director of Aromatics – Asia in CMAI’s Singapore office. He joined CMAI in April of 2003. Before joining CMAI, he worked in various job functions and locations with ExxonMobil Chemicals. While he was with ExxonMobil Chemicals, he spent most of his time in Singapore and Houston, TX working in operation, technology, and business planning. Before moving to overseas, Mr. Pang worked for SINOPEC as a Research and Technical Support Engineer in Beijing, spending the bulk of his time in aromatic technology development.

Mr. Pang holds Bachelor of Chemical Engineering degree from the South China University of Technology, Master’s degree in Chemical Engineering from the National University of Singapore, and MBA from the University of Houston in 2001.

Project Team:

Xiaomin Liu, IHS CERA Associate Director, covers Asia coal markets with a current focus on the Chinese steam coal. Xiaomin has over 15 years experience in the Chinese coal industry, with previous positions in coal washing plant design, energy policy, and market fundamentals analysis. Xiaomin has recently joined IHS and is based in our Beijing office. Prior to joining IHS CERA Xiaomin was a coal market analyst at Rio Tinto for more than six years, also based in Beijing. Previously he was a consulting engineer in China Coal Information Institute focusing on policy, strategy, and market research for governmental organizations and state enterprises. Xiaomin holds Master’s and Bachelor’s degrees from Chinese University of Mining Technology and is currently completing his PhD in resource economics.

Brendan Mrosak, IHS CERA Associate, Gas and Power, is a specialist in fundamental analysis and data support involving the power market in China. Based in Beijing, Mr. Mrosak is primarily responsible for power market and policy analysis as well as providing data support for the IHS CERA China Energy Advisory Service and related consulting activities. He contributes to the IHS CERA China Energy Watch, Market Briefing, and IHS Global Scenarios. He also manages the China Energy Provincial Profiles and the Electric Power Data Center. Mr. Mrosak’s recent research includes analysis on pricing reforms in the Chinese power sector, capacity outlooks and policy analysis regarding China’s nuclear power industry, and gas consumption outlooks for gas-fired power generation in China. He has also participated in multiple consulting engagements related to power project valuation and climate change policy. Prior to joining IHS CERA Mr. Mrosak was an analyst in a research and advisory firm in Beijing, where he was responsible for projects related to finance and macroeconomics. He has spent more than four years in China researching, studying, and working. Mr. Mrosak is fluent in Mandarin Chinese. He holds a Bachelor of Arts degree from St. Olaf College and is a former Fulbright Scholar.

Alex Whitworth, IHS CERA Associate, is a specialist in energy technology and policy analysis as well as energy systems modeling. Based in Beijing, Mr. Whitworth is responsible for the coal and gas market models for the China Energy team and integration with the IHS CERA global scenarios. He also contributes to the China Energy Watch and China Energy Provincial Profiles. Among his research areas are environmental and climate policy analysis and the Chinese coal market. Before joining IHS CERA Mr. Whitworth was an analyst at The Climate Group, focusing on low-carbon policy and clean energy market development in China. Prior to that he was China Development Manager at the Innovation Center for Energy and Transportation, based in Beijing. Earlier in his career he was an environmental engineer engaged in hydro projects, mining operations, and water management, based in New Zealand. Fluent in Mandarin Chinese, Mr. Whitworth holds a Bachelor of Engineering degree from the University of Auckland, an MS from Columbia University, and an MA from the Woodrow Wilson School at Princeton University.

Jenny Yang, IHS CERA Senior Associate, Asia Gas & Power, is a member of the IHS CERA Asia energy research and consulting team. Ms. Yang is an expert in power markets, with extensive knowledge of electricity load forecast and peak demand management, pricing and structuring electricity products, power retail operations, and electricity deregulation. She supports the IHS CERA power market modeling and forecasting research in Asia. Prior to joining IHS CERA Ms. Yang held senior positions with Constellation NewEnergy. Most recently she was Vice President, Pricing and Structuring overseeing regional operations in Texas, California, and Alberta. Earlier in her career Ms. Yang worked at Williams as a quantitative analyst, responsible for modeling forward price and volatility curves for energy-related trading commodities. Ms. Yang holds a BS and an MBA from the University of Oklahoma with distinction. She is based in Beijing.

Xianfang Ren is a Beijing-based Senior Analyst in the Global Economics and Country Risk Group of IHS Global Insight. Ren leads the company’s China Regional Service research and contributes to the Country Analysis and Forecasting Service. Ren has extensive experience in the analysis of China’s economic, policy and regulatory developments. She frequently presents the company’s views to clients and the media. Ren holds an MA in international trade and investment policy from the Elliott School of International Affairs at the George Washington University.

Alistair Thornton is a China Economist within the Global Economics Group of IHS Global Insight. Based in Beijing, his research focuses on China macroeconomics at both a national and provincial level, looking at issues such as monetary policy, property market outlook, inflation trends, and provincial dynamics. He also provides economic insight to the work of IHS Cambridge Energy Research Associates. Prior to joining IHS, Alistair was an analyst at a political risk firm in Beijing and a contributor for the Economist Intelligence Unit. Alistair holds Masters degrees from the University of Edinburgh and University of Sydney, and speaks Mandarin.

Project Advisors:

Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, is a Pulitzer-Prize winning author and leading authority on energy, international politics and economics and is a recipient of the United States Energy Award for “lifelong achievements in energy and the promotion of international understanding.”

His latest book The Quest: Energy, Security, and the Remaking of the Modern World, has been hailed as “a fascinating saga” about the “quest for sustainable resources of energy” and “the book you must read to understand the future of our economy and our way of life.”

The Quest is the follow-up to Dr. Yergin’s previous book, The Prize: the Epic Quest for Oil Money and Power, which received the Pulitzer Prize and became a number one New York Times best seller that has been translated into 17 languages.

Other significant works by Dr. Yergin include Commanding Heights: The Battle for the World Economy; Russia 2010; Energy Future; and Shattered Peace. Dr. Yergin has also written for The New York Times, Wall Street Journal, Financial Times, Foreign Affairs, Foreign Policy, The Atlantic, International Herald Tribune, and many other publications. He is also CNBC’s Global Energy Expert.

Dr. Yergin serves on the U.S. Secretary of Energy Advisory Board and chaired the U.S. Department of Energy’s Task Force on Strategic Energy Research and Development. He is a Trustee of the Brookings Institution, on the Board of the New America Foundation, and on the advisory boards of the Massachusetts Institute of Technology’s Energy Initiative and the Institute for 21st Century Energy.

Dr. Yergin holds a BA from Yale University, where he founded The New Journal, and a PhD from Cambridge University, where he was a Marshall Scholar. He has taught at the Harvard Business School and the Kennedy School of Government at Harvard University.

David Hobbs, IHS CERA Chief Energy Strategist, is an expert in energy industry structure and strategies. He previously managed the IHS CERA energy research activities. Mr. Hobbs is a principal author of the major IHS CERA studies Fueling North America’s Energy Future: The Unconventional Natural Gas Revolution and the Carbon Agenda, a comprehensive examination of the impact of the changed natural gas supply outlook on energy markets, power generation technology choices, and the challenges of procuring a low carbon future; In Search of Reasonable Certainty: Oil and Gas Reserves Disclosures and Modernizing Oil and Gas Disclosures, comprehensive analyses of the problem of assessing oil and gas reserves and resulting proposed solutions; “Recession Shock”: The Impact of the Economic and Financial Crisis on the Oil Market, a major IHS CERA assessment of the world economic crisis; and of the IHS CERA Multiclient Study Harnessing the Storm—Investment Challenges and the Future of the Oil Value Chain.

Prior to joining IHS CERA Mr. Hobbs had two decades of experience in the international exploration and production business. He has directed projects in Asia, South America, North America, and the North Sea. He has led major international investment and asset commercialization operations. Based in Cambridge, Massachusetts, Mr. Hobbs holds a degree from Imperial College.