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Garnaut sees declining Chinese coal consumption

by Charles Macdonald created Jun 05, 2014 10:28 AM

Just when the Australian coal industry thought things couldn’t get any worse, renowned China expert and economist Ross Garnaut has predicted that China’s coal consumption will fall at an average annual rate of 0.7% from now to 2020.

Garnaut sees declining Chinese coal consumption

China expert and economist Ross Garnaut says the worst could be yet to come for coal miners relying on China.

The Australian Financial Review contrasted Garnaut’s gloomy forecast to China’s previously booming demand, which saw its coal use grow at nearly 13% a year from 2000 to 2011.

Garnaut says that if Chinese policies to reduce its energy use bite harder “its coal consumption could fall by more than 10% in total by 2020.”

Garnaut’s conclusions are contained in a chapter called “China’s Role in Global Climate Change Mitigation” he has written for the forthcoming China & World Economy Journal.

The switch in Chinese demand looks to have wrong-footed coal producers who have poured investment into new mines in recent years.

“Australian-based coal producers have made large investments in expanding capacity at home and abroad since the outlook changed in 2011,” Garnaut told the AFR.

“Little of the incremental investment since 2011 will return the cost of capital to shareholders and all of it lowers returns to past investments by lowering prices. Catching up with reality sooner rather than later will limit the amount of good money that is thrown after bad.”

Garnaut’s conclusions will make grim reading for Glencore and Sumitomo who this week concluded a deal to buy Rio Tinto’s 50.1 per cent interest in the Clermont coal mine for US$1.015 billion.

Under the terms of the sale, Glencore has now taken over management of Clermont, which produces thermal coal in central Queensland.

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