(Minews) - Coal miners in Australia and Indonesia could be forgiven for feeling depressed, given the plethora of news coming out from top buyer China on how it intends to cut demand for the dirty fuel.
In the past few days China's National Energy Administration has set a target of lowering coal's share of energy use to below 65 percent in 2014 from last year's 65.7 percent, three years ahead of initial plans.
Beijing's mayor has urged an "all-out effort" to tackle air pollution, pledging to cut coal use by 2.5 million tonnes a year in his polluted city.
In neighbouring Hebei province, the country's biggest steel-making region, authorities have said they will block new projects, punish officials in areas of high pollution, and cut steel output and coal use by 15 million tonnes each this year.
This all sounds bearish for coal, and the gloom of miners that export to China could be deepened by signs that domestic supply in the biggest producer and user of the fuel is rising.
Industry figures suggest China's coal output rose about a percent last year to 3.7 billion tonnes, up from 3.66 billion tonnes in 2012, but its five-year plan for 2010-2015 calls for adding 800 million tonnes.
About 100 million tonnes of that additional capacity is expected to come onstream this year.
China also plans to raise annual coal rail capacity nearly a third to 3 billion tonnes by 2020 and build 11 large-scale storage and distribution bases to aid logistics.
Lack of transport from coal-mining regions in the north and west of China to major consumers in the industrial south and east has previously served to turn the nation into the world's biggest coal importer.
For Asia-Pacific coal miners focused on growing their business by meeting rising Chinese energy use, it seems like a triple-whammy of lower demand growth, higher domestic supplies and improved infrastructure.
But there are always a few "buts" to consider.
EXPENSIVE RENEWABLES, ECONOMIC GROWTHThe first is whether China can actually achieve the planned reduction in coal's share of energy generation.
While some hydropower capacity can still be accessed, this source of power generation is nearly tapped out. That means other renewables such as wind and solar will have to join with nuclear and natural gas to displace coal power.
While this capacity can be built, it remains vastly more expensive, and generators, provincial authorities and industry have little incentive to switch to costlier power sources.
Even if China is successful in cutting coal's share to below 65 percent, absolute volumes used will continue to climb.
Power consumption rose 7.5 percent in 2013 to 5.32 trillion kilowatt hours, according to official figures, putting its growth at the same pace as economic expansion.
Even with increasing energy efficiency factored in, and assuming gross domestic product growth remains around 7.5 percent, it wouldn't be unreasonable to assume power consumption gaining about 7 percent in 2014.
Then, even if China achieves a 0.7 percentage point reduction in coal's share, the amount of additional coal needed would still be in the region of 200 million tonnes.
COAL OUTPUT TO INCREASE BY 100 MILLION TONNESChina's coal output is expected to be around 3.8 billion tonnes in 2014, a gain of 2.7 percent, or about 100 million tonnes, from 2013, according to figures from the China National Coal Association.
This suggests as much as 100 million additional tonnes may be sourced from imports, assuming no change in inventory levels.
It's unlikely that import growth will be that strong, however, given that many cargoes are destined for the Pearl River and Yangtze River deltas, both areas where pollution-reduction efforts are likely to be among the strongest.
Chinese coal imports totalled 239.2 million tonnes in the first 11 months of 2013, a gain of 16.6 percent on the same period in 2012.
Given the foregoing, an increase of a similar magnitude seems entirely plausible in 2014, provided international prices remain competitive with China's domestic production.
Currently this is the case, with weekly benchmark spot prices at Australia's Newcastle port at $83.23 a tonne as of Jan. 10, only slightly above the four-year low of $76.70 hit in September last year.
Australian producers may also find themselves gaining a slight edge over their Indonesian rivals, after the moves by China to raise the quality of coal being burned.
Indonesia, the largest exporter of thermal coal for use in power plants, produces lower calorific coal than Australia, the biggest shipper of coking coal and thermal coal combined.
Coal miners should be wary on a longer-term basis, though, as trends sometimes gain a momentum all of their own.
China is clearly heading down the path of trying to use less coal, while improving its domestic output and infrastructure.
While this doesn't mean an end to imports, it does mean inbound coal will have to be cheaper than domestic supplies, and this points to structurally lower prices for miners.
