There's still significant corporate activity in Australia's coal industry, but most of the serious action is in thermal coal companies expanding into higher-value steelmaking coals. Whitehaven Coal and Yancoal Australia are prime examples of this trend.
Whitehaven has recently acquired two high-quality hard coking coal mines in Queensland from BHP and quickly capitalised on this investment by selling 30% of the Blackwater mine to two Japanese steel companies.
Could Whitehaven follow this up with equity sales to other Japanese mills, or perhaps to steel companies in South Korea, Taiwan, or India? Such deals have been commonplace in the iron ore sector, with companies like BHP and Rio Tinto leading the way.
Yancoal, which is hoarding its cash and not paying a dividend (unlike Whitehaven), appears to be eyeing the five central Queensland coking coal mines that Anglo American will be selling. The first round of expressions of interest for these mines is due next month.
Meanwhile, Glencore, the world's largest thermal coal exporter, has completed the purchase of the hard coking coal mines of Canadian group Teck Resources for $6.9 billion. Glencore will integrate these mines into its existing business, which is primarily focused on thermal coal. This acquisition will make Glencore the largest coal exporting business globally, even surpassing BHP in terms of coking coal tonnage shipped annually.
While this activity suggests that thermal coal demand, particularly from China, won't disappear quickly, there have been increasingly strong signs of demand in recent months. China has been struggling with soaring electricity demand due to a series of heat waves, wet weather, and floods. This has led to record-breaking coal imports in 2023 and a potential second record this year.
Some of this demand has been for steelmaking coal, but the majority has been for thermal coal, primarily from Russia and Mongolia. According to the National Bureau of Statistics, China produced a record 883.1 billion kilowatt hours (kWh) in July, up 2.5% year-over-year and a significant 15% from June.
To meet this surge in consumption, power production in China has increased for four consecutive months compared to the same period in 2023. Hydropower from the southwest has helped meet the increased demand, thanks to abundant water availability following the severe drought in 2022 and an early 2023 shortfall. July's power consumption was also 14.5% higher than June's.
While this would normally be seen as a positive sign for the Chinese economy, it does reflect increased use of air conditioning and electric vehicles, with tens of millions of these vehicles recharging daily.
Chinese analysts report that the share of power generated by coal has declined from June 2023 to June this year, primarily due to the increased use of hydropower. However, this has not slowed Chinese import demand. China's coal imports from all sources rose to a seven-month high of 46.21 million tons in July, up 18% year-over-year.
The National Bureau of Statistics data indicates that the Chinese coal industry is still unable to meet this strong demand. From January to July, China produced 2.66 billion tonnes of coal, down 0.8% from the same period in 2023. Daily coal production in July averaged 12.59 million tonnes/day, down from June's daily average of 13.51 million tonnes.
This shortfall helps explain the strong demand for coal this year, especially on the southeast coast where Australian and Indonesian coal is actively sought and preferred. Customs data this week showed that thermal coal imports hit a record of 34.41 million tonnes last month, up more than 11% from July 2023 and nearly 3% more than June.
China has increased its coal imports from Indonesia, Mongolia, and Australia, but Russian exports have been hindered by sanctions and logistical issues. Indonesia, the largest coal exporter to China and the world, increased its coal volumes to China by 22% year-over-year in July. Russian coal imports, however, fell by 3% due to payment difficulties and logistical challenges. Mongolian coal exports to China also rose, gaining by 23% as transport links to China are being improved.
Despite the booming demand for thermal coal and exports to China, there are signs that this trend may not be sustainable. Recent reports have revealed a sharp decline in approvals for new coal-fired power stations in China. China approved only 10 new coal power stations with a reported capacity of 9 gigawatts (GW), a significant 83% fall year-over-year. This decline is attributed to the continued growth of renewable energy in China, which has been adding ever-increasing amounts of wind and solar capacity.
