China’s manufacturing wobble may drive coal use even higher

A cargo ship is loaded with coal during the opening ceremony of a new dock at the North Korean port of Rajin in this July 18, 2014 file photo. South Korea said on March 8, 2016 it would impose new sanctions against 40 individuals and 30 entities because of suspected links to North Korea's weapons programme and would ban vessels that had stopped at North Korean ports in the past 180 days. REUTERS/Yuri Maltsev/Files

China is already on track to emit the most coal-fired power emissions in history in 2023, but may now push coal use up another gear after the manufacturing sector unexpectedly contracted in April following a strong start to the year.

The softer manufacturing data is expected to trigger fresh stimulus measures designed to spur increased industrial output, as well as steps to help the country’s ailing property sector, which will lead to greater energy use throughout the world’s largest manufacturer, exporter and polluter.

In turn, power producers are expected to increase use of high-polluting but cheap coal as the main source of power generation, as the tentative nature of the economic recovery means that authorities will be keen to ensure that power costs are as low as possible for businesses and industries.


Beijing has already taken several steps to restore China’s economy to a growth path in 2023, following a COVID-19-hit 2022 that curtailed industrial activity and goods production.

The stimulus measures included financial support for export-oriented manufacturers and the easing of movement restrictions so that workers and goods could move more freely, and seemed to have had the desired effect by generating strong growth over the opening three months.

Output of a slew of key appliances including refrigerators and air conditioners, and industrial materials such as crude steel, also increased sharply since late 2022 as the revival measures took root.

However, there are signs that momentum slowed in April after an official measure of manufacturing activity receded into contraction territory due to a patchy global consumer marketplace that could not economically absorb the flood of goods and materials emerging from China’s re-invigorated plants.

To combat any further slowdown, Beijing unveiled fresh supportive measures last week, including plans to boost auto exports through cheaper financing, and is expected to drive fresh investment into the country’s property sector, which has historically been a key pillar of the Chinese economy.

The combination of new incentives for large manufacturers alongside anticipated support for the construction and property markets will result in greater total power consumption in China over the coming months, and in turn even higher emissions.


Total electricity generation in China hit a new record in the opening quarter of 2,180 terawatt hours (TWh), according to data from think tank Ember.

That is 5.2% more than over the same period in 2022, and was fuelled in part by a 12% rise in generation from clean sources.

However, the single largest source of electricity was coal, which generated a record 1,393 TWh or 64% of the total during the opening quarter.

Emissions from that record coal generation total also hit a new high, topping 1.14 billion tonnes, Ember data shows.


China’s utilities imported record volumes of thermal coal to power that economic recovery, with total imports from January through April jumping by 85% from the same period in 2022 to 97 million tonnes, according to ship-tracking data by Kpler.

Further increases in China’s coal imports are likely as the peak demand period for air conditioning kicks in over the summer.

For cost-conscious power producers, the wide price spread between thermal coal and natural gas will also be supportive for coal imports, even if cleaner-burning natural gas can also be used for power generation.

In Guangdong province, home to one of China’s largest manufacturing hubs, natural gas prices are currently trading around 5,500-5,700 yuan per tonne, according to data from Refinitiv.

That’s more than 2,000 yuan per tonne less than where gas prices were trading in late 2022, and marks the lowest gas costs in that region in more than a year.

However, gas prices remain more than four times the cost of coal in the domestic market, making it unattractive for power generation firms who are under pressure to keep energy costs as low as possible.

Those same firms are likely to face pressure to deliver more power and electricity in the coming months, especially if Beijing successfully boosts activity in China’s mammoth property sector and generates more demand for energy-intensive construction-related products such as cement and plate glass.

Power producers are also likely to prioritise low cost generation to keep electricity prices in check for manufacturers, who are major consumers of China’s own materials supply chain before exporting finished and semi-finished products to global buyers.

Over time, stronger global consumer demand may give China’s power producers scope to switch out dirty coal for more costly but cleaner gas, which would help drive China’s power emissions lower even as industrial output climbs.

But with the all-important manufacturing base currently under duress, low-cost coal remains firmly in the driver’s seat of China’s mammoth energy system, and will continue to push the country’s emissions totals to new heights despite global efforts to cap pollution elsewhere.

Source: Reuters


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