Rise in China’s Coal-fired Capacity in 2014, 2015 may not Boost Thermal Coal Prices: UBS


China is expected to increase its coal-fired capacity in 2014 and 2015 to maintain power supply security, but that might not significantly boost thermal coal prices as the market is oversupplied, analysts at UBS Securities said in a research note last week.

“We expect coal-fired units construction to accelerate in 2014 and 2015, primarily because the coal-fired capacity added of 30 GW in 2013 was too low, compared to 49 GW per annum in the last 10 years,” UBS analysts said, adding that China would need 47 GW of coal-fired capacity per year by 2020 to provide a stable supply of electricity.

The analysts expect coal-fired capacity additions of 36 GW in 2014, 42 GW in 2015, 45 GW in 2016 and 47 GW per year starting in 2017.

Thermal coal prices are, however, not expected to rise significantly as the market continues to be oversupplied, while growth in power demand is expected to be modest.

China’s move to diversify to renewable sources of energy has also eaten into coal’s share of power generation, but the analysts said the government’s need to secure power supply, which is a highly sensitive political issue, will keep the country’s appetite for thermal coal relatively healthy.

“We think it is incorrect to assume that the government’s plan to build more renewables means China does not need coal-fired units. We believe China still needs coal-fired units as base loads to secure supply,” the analysts said in the note.

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