As China's economy gains pace after three years of lockdowns, analysts see significant upside for coal and LNG demand in case of a construction-led boom. Though China strives to primarily source thermal coal at home, it still needs an additional 49 million tons of seaborn coal which could push up Newcastle coal futures by 37 percent in the second quarter to $151 per ton.
Coal accounts for 60 percent of China’s power generation, where demand is forecast to increase by 7 percent or 158 million tons from last year.
“In our high-growth scenario, China sets a record for global coal demand, exceeding 2019 demand of 8,512 million tons,” Wood Mackenzie's global head of thermal coal markets Natalie Biggs said, forecasting China could need an additional 49 million tons of seaborne coal which risks to unbalance markets and make prices spiral. The steel and cement sector, two other major coal consumers, will also add to non-thermal demand and increase the need for coal imports to complement domestic production.
Analysts expect China’s gas consumption to rise by more than 30 billion cubic meters, or 9 percent, driven by strong GDP growth and lower prices on global markets. But booming domestic production, up 14 bcm, and a ramp up in Russian pipeline gas imports by about 7 bcm is expected to constrain LNG imports to 97 bcm, or 71 million tons in 2023. “This would be just 7.4 million tons more than last year and still far less than the record 80 million tons imported in 2021,” analysts noted.
LNG imports stay below 2021 records
In Wood Mackenzie’s high-growth case, gas demand is growing by an additional 10 bcm – which would have to come from spot LNG imports. Yet analyst do not expect this do lead to “a repeat of the chaos seen in 2022” when cuts in Russian gas deliveries and Europe’s sudden turn to LNG send prices soaring. Even in the high-growth case, China’s LNG demand is forecast to “only” reach 78 million tons this year – still short of 2021 imports.
Stonger Chinese LNG demand will, however, boost global competition for supply at a time when no new liquefaction and export projects are due to be commissioned before 2025. In this case, prices will inevitably rise although analysts expect that moderating demand elsewhere will limit the price upside to $25/MMBtu.
