Page 56 - bne_Magazine_May_2018_print

56 I Eastern Europe bne May 2018
Apart from Beijing’s environmental concerns, the drive behind the reforms, initiated in 2016, has been the need to restructure China’s outdated coal indus- try. Small and largely uncompetitive coal companies are being shut down all over the country.
The plan aims to completely eliminate a total of 109 GW of coal-fired power capacity by the end of this decade and simultaneously keep its total installed coal-fired power capacity below 1,100 GW. For 2017, the plan was to decom-
According to data from China’s General Administration of Customs, arrivals from Russia in 2017 surged 36.3% from 2016 to 25.3mn tons. The correspond- ing numbers for Mongolia and Australia were 27.6% and 13.4%, respectively.
Apart from China’s growing demand, the three countries largely benefited from China’s ban on coal imports from North Korea introduced in late February last year. In 2016, China imported more than 20mn tons of coal from North Korea, making it its fourth largest coal provider
Mechel, exports around 30% of its coal to China.
That said, even those companies prof- ited greatly from the recent upsurge in exports to China and the subsequent increase in prices of the commodity so abundant in the Russian soil. The energy giant Evraz, traded on the London Stock Exchange, saw its shares double in value in 2017 alone, a steady growth, which so far hasn’t showed any signs of stopping. Similarly, the Moscow traded Mechel has seen its shares triple in value since 2016.
Infrastructure is the key
Incentivized by the growing demand from China, Russia is developing new coal production centers in the Far East of the country to further boost its energy production. More importantly, the Rus- sian government is currently focused on improving the existing infrastructure connecting the coal production facilities, located mostly in the south, with the ports in Russia’s Far East.
In order to make the whole process, starting with mining and finishing with loading the ready-to-use-coal on cargo ships, more efficient, Russia is working on improving its key railway infrastruc- ture, namely the Baikal-Amur Mainline (affectionately know as BAM in Russian) and the more internationally recognized Trans-Siberian Railway Network. These two railway networks have made Rus- sia’s coal expansion to the markets in Asia-Pacific region possible. But now, after decades of a complete lack of any
“Russian corporations involved in coal mining, and other related sectors, grew by a staggering 68% y/y in 2017”
mission or suspend 50 GW, which
the government exceeded by 15 GW, according to a State Council announce- ment reported by Reuters. As of 2017, however, coal still remained the largest source of energy in China at just over 60% of its energy mix, though that has decreased from 80% in 2010.
The consumption of coal in China has been decreasing steadily since 2013. However, 2017 was a departure from this trend, seeing a rise of 0.4%, according to statistics released by the National Bureau of Statistics reported the Financial Times. According to the FT report, the unexpected increase in Chinese coal consumption was caused by a 5.7% y/y increase in electricity demand due to a short term increase in heavy construction activity designed to boost the economy just before the October national congress in 2017. At the same time, last year saw hydropower productivity, which has been able to satisfy energy demand in recent years, drop by 40%.
Swapping import partners
Given the already mentioned capacity cuts in its domestic mining sector, China had to bridge its coal demand through coal imports. The primary benefactors of the surprising upsurge in China’s coal demand were Russia, Mongolia and Australia.
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after Australia, Indonesia and Mongolia, a position North Korea quickly lost after the ban had taken effect.
“The majority of suddenly available market share was grabbed by Russia,
as mining costs in Russia are cheaper than in China’s northeast region,” Cheng Gong, an analyst at the China National Coal Association told the South China Morning Post.
In 2016, Russia’s five largest companies accounted for 78.8% (223.3mn tons) of all coal production in the country, according to the Russian Fuel and Ener- gy Complex report from 2017. Most of
“The primary benefactors of the surprising upsurge in China’s coal demand were Russia, Mongolia and Australia.”
that coal (171.4mn tons) was exported to foreign markets. Exports to China, however, constituted only a small part - 11%. This is due to the fact that energy conglomerates like Evraz, a multina- tional steel making and mining company headquartered in London, focuses on other markets, mostly Japan and South Korea. Another Russian energy giant,
maintenance, both railway networks are in desperate need of some serious revamping.
The government plan is to increase the throughput of both key railway networks six-fold to 180mn tons, over the next six years. According to a recent statement made by president Putin, cargo contain-