China Coal.pdfVIP

05 January 2012 Fixed Income Research /researchandanalytics Fuel For Thought: Thermal Coal in China Commodities Research Research Analysts Marcus Garvey +44 207 883 4787 marcus.garvey@ Andrew Shaw +65 6212 4244 andrew.shaw@ Source: Credit Suisse China accounts for almost 50% of world coal consumption and, since 2009, has moved from a position of total self-sufficiency historically, it was a moderate net exporter to being a significant importer of thermal coal. Consequently, movements in China’s domestic market have increasingly come to influence the seaborne market and international prices. This report provides a broad overview of the Chinese thermal coal industry, looking at both supply and demand aspects of the market, its role in China’s broader energy mix and expected energy market changes. Key takeaways: ? Coal is the only energy source in which China has a relatively strong natural endowment although unconventional gas is a potential game changer . ? Energy security dictates that coal and electricity , will continue to dominate China’s energy mix and mitigate risks of too heavy a reliance on oil. Coal’s proportional contribution will fall in the longer term but, in absolute terms, consumption will grow strongly. ? Nuclear and renewable energy power are expected to grow their share of China’s power mix, and provide an eventual counter to carbon emissions, but the impact will only take place over a long period of time ? Despite abundant resources, China’s coal mining industry will struggle to keep pace with demand growth, without steeply rising economic and social costs, leading to steadily-rising imports. ? The arbitrage between Chinese and international thermal coal prices will continue to be key in determining the size, timing and source of China’s coal imports. ANALYST CERTIFICATIONS AND IMPOR