The world is reading the last rites over the dirtiest fossil fuel.
Global demand for coal fell in 2016 for the second year in a row, with output dropping at the fastest pace on record, according to BP Plc. On April 21, the U.K.'s electricity generators didn't use a single metric ton for 24 hours, the first time that's happened since the 19th century. Now China, the biggest coal importer, is planning to ban shipments at an array of provincial ports starting Saturday, people with knowledge of the matter told Bloomberg.
Those hoping that there's an easy road ahead to decarbonize the planet's energy systems should temper their optimism. Thermal coal at Newcastle in Australia, the biggest export harbor for the commodity, has trimmed its 18 percent year-to-date fall with a 6.1 percent gain over the past month. Far from being beheaded by the growth of renewables, 2017 may be the year when this zombie fuel shambles forward again.
To see why, have a look at the weather in Chengdu. Just 66 centimeters of rain have fallen on the capital of China's Sichuan province so far this year, the driest first half since 2011, according to data compiled by Bloomberg. Things aren't much better in Kunming, the capital of neighboring Yunnan province.
That matters because hydro power accounts for about a fifth of China's total installed electricity capacity, and the bulk of its dams are in those two provinces. Sure enough, year-to-date hydro generation was down 4.8 percent from a year earlier in May, the worst performance since 2010. Low-carbon generation still accounts for around a quarter of China's electricity mix, but for the past 12 months there's been precious little increase in its share.
Coal has been filling the gap. China's output was up almost 10 percent from a year earlier in April, according to the National Bureau of Statistics, while imports climbed more than a third. The planned import ban might have a surprisingly underwhelming effect: Such diktats from Beijing are typically used to discipline domestic industries by increasing the market share of the top players, and don't necessarily lead to declines in output.
There's a similar pattern elsewhere in the region. South Korea's coal consumption dropped about 5 percent in 2016 owing to weakness in the steel industry and output caps on aging generators, according to the Korea Energy Economics Institute, a research group. This year, it's forecast to rebound 6 percent as a fleet of newer coal power stations spark up. With scanty domestic deposits, that change is being felt in external trade: On a trailing 12-month basis, thermal coal imports hit a record of 90 million metric tons in March.
The picture is only a little different in Japan, which was briefly the world's biggest coal importer in 2015 thanks to the shutdown of nuclear plants following the Fukushima Daiichi disaster. January thermal coal imports of 11.2 million metric tons were the third-highest in the country's history, and total imports were up 5.5 percent in the first four months of the year.
Bears can take heart from India, where year-to-date imports are down 26 percent -- but even there, the 43 million metric tons arriving at the country's harbors over the period is a far cry from the ambitions of energy minister Piyush Goyal, who's pledged to end such trade altogether this year.
Evidence abounds that the Pacific market is tight -- typically a factor in higher prices. At Chinese ports, coal inventories have been hovering around a month's supply, well down on recent levels. At Newcastle, a widening backwardation in the futures curve indicates the same thing.
In the short term, import growth in Asia is probably a more bullish factor for global coal demand than President Donald Trump. His efforts to revive the U.S. industry, as Gadfly's Liam Denning has written, are likely to remain hobbled by its poor economics relative to natural gas and, increasingly, wind and solar.
There's still the hint of a silver lining on that sooty cloud hanging over the world's climate, though.
Coal bears -- Gadfly included -- were caught out last year by the strength of prices in a generally declining market. But the 2016 spike came against the backdrop of tightening supply as miners shut pits amid weak profitability. With imports rising, the likes of Yanzhou Coal Mining Co. and Glencore Plc fighting over ownership of mines, and benchmark Newcastle coal hovering north of $70 a metric ton since September, conditions are ripe for an uptick in supply, and a subsequent glut.
Profits in the global coal industry have rebounded over the past 12 months, but thanks to the march of renewables they remain under long-term pressure. The real threat to the black stuff isn't an orderly decline in global output, but a series of price swings from boom to bust and dearth to glut, that will wreck the business models of the companies that dig it up. The recent spell of health in the coal market makes that prospect closer, rather than more remote.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To be sure, a substantial share of that volume is the coking coal used in steelmaking, which Goyal is happy to continuing buying from overseas.
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