In the first half of 2013, coal demand is likely to see an upward trend. As the primary energy source in China, coal continues to dominate the country's fossil fuel structure. This position is expected to remain unchanged in the short term. The main uses of coal are for thermal power generation and steel production, which are heavily influenced by economic conditions.
Since September 2012, the macroeconomic environment has shown signs of recovery, leading to increased power generation and steel output. According to the Macro Strategy Group at China National Securities Research Institute, these sectors are projected to grow further in the first half of 2013, thereby boosting coal demand. Coal accounts for approximately 70% of China’s total energy consumption, with significant usage in industrial processes, especially in power generation and coking.
Power generation remains a major driver of coal demand. Although growth was sluggish at the start of 2012, it picked up significantly from September onward. In November, electricity consumption rose by 7.6% year-on-year, marking the highest increase since March. Similarly, national electricity generation also saw a notable rise, reaching 401.1 billion kWh—an increase of 7.9% compared to the previous year.
Coke, primarily used in steelmaking, plays a critical role in the steel industry. With both steel and coke production showing improvement since September 2012, the outlook for coal demand looks more positive. Government policies aimed at steady growth, urbanization, and infrastructure development are expected to further stimulate demand in the coming months.
On the supply side, coal production capacity remains abundant. During the "Twelfth Five-Year Plan," coal production capacity is set to expand significantly. By 2015, China’s coal enterprises are expected to produce up to 4.1 billion tons annually. However, this overcapacity poses challenges, as domestic coal inventories remain high, creating pressure for stock reduction.
While China is a major coal producer, coal imports have been growing rapidly. In 2011, coal imports reached 182 million tons—up 91.7 times compared to 2001. Despite this, most coal consumption still comes from domestic sources. Nevertheless, imported coal has started to impact the domestic market, adding complexity to the supply-demand balance.
With coal production capacity outpacing actual demand, oversupply issues are unlikely to resolve quickly. The release of new production capacity is expected to slow down in the next few years, which may hinder the expansion of the coal market. Overall, while coal demand is expected to rise in the first half of 2013, the industry faces ongoing challenges due to excess supply and inventory pressures.
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