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Thursday, 29 January 15
CHINA ENERGY DEMAND MUST BE REVIEWED DUE TO FUNDAMENTAL ECONOMIC CHANGES - WOOD MACKENZIE
 New patterns emerging as energy demand growth decoupled significantly from GDP growth for the first time in 2014
Wood Mackenzie says 2014 was a significant year for China as economic rebalancing led demand growth - for a range of major energy commodities - and GDP growth decoupled significantly for the first time. Over the past two decades, commodity demand growth had maintained relatively proportionate annual increases to GDP growth. In 2014 however the pace of power, gas, coal and diesel demand increase fell more drastically than the slight GDP moderation, beyond expectations. Wood Mackenzie expects gas demand will recover in one to two years as the key drivers of slower growth are mainly cyclical but power, coal and diesel demand will see their outlook change notably over the long-term due to major structural changes in the economy and policy. Global energy sector will need to identify which changes are structural or cyclical in to determine future demand patterns and opportunities.
China's GDP grew by 7.4% in 2014 compared to 7.7% in 2013, a modest decline. Meanwhile, compared to 2013 power demand growth fell by almost half; Gas demand growth fell by more than 8%-point; Coal demand barely grew; and Diesel demand actually contracted for the first time in more than a decade. (refer to chart). Ms Cynthia Lim, Principal Asia Economist for Wood Mackenzie says, "7.4% is still a large year-on-year GDP increase for any economy so this fall in commodity demand is counter-intuitive and we have only seen the tip of the iceberg. The Chinese government is moving away from the post-2008 investment binge and gradually moving towards a more moderate but sustainable consumption-led economic growth. There are two aspects of rebalancing: one, away from investment towards consumption, particularly in the developed coastal region; and two, a shift in economic gravity away from the coast and towards the inland region. Both trends will have significant implications on commodity demand shifts. An important indicator for the energy industry to watch will be the weakness of industry versus the strength of the consumer in China."
The research company expects Industrial recovery and related investment will remain subdued in 2015-2016 but should see robust growth through the medium-term supported by urbanisation. Key sectors such as coal and steel are weighed down by overcapacity, tighter environmental regulations and the property market slowdown. While the government has relaxed both house purchase restrictions and credit conditions through 2014, recovery in real estate will be slow as inventory levels remain high and potential buyers stay on the side line due to market uncertainty.
Wood Mackenzie analyses which sectors will be most affected in the near-term (one to two years), medium term (two to seven years) and long-term (over eight years):
Power - Sustained change due to economic rebalancing
The short-term weakness in the industrial sector will continue to subdue power demand growth, especially as high inventory levels are reduced. Mr Gavin Thompson, Principal Analyst for APAC Gas & Power research says, "Industrial output will eventually recover from overcapacity and weak demand but China's rebalancing away from industry to the service sector will have a longer-term structural impact. In tandem with the geographic rebalancing of China's economy, regional power patterns will also change with higher demand growth concentrated in the western provinces where industrialisation processes are focused, compared to coastal markets." Wood Mackenzie forecasts that power demand year-on-year in the western regions will rise at around twice the pace of coastal markets through the medium term of 2-7 years, with significant implications for capacity and fuel choices.
Coal - Remains king but impacted by structural lower power demand growth
The pace of annual coal demand growth slowed to 4-5% in 2012 and 2013 from (what the previous year), particularly in coastal markets with near-zero growth in demand for power generation. However, Mr Thompson asserts, "Coal remains king in China but growth has been severely reduced, due to industrial weakness as well as cyclical weather patterns that saw higher rainfall boost hydro output. Through the short-term, coal-fired generation will likely be muted by lower power demand, environmental policies and a rise in non-coal generation including hydro. Longer-term , coal demand pace and patterns will be impacted by structural changes, with demand rising fastest from inland provinces and the acceleration of ultra high voltage (UHV) transmission lines to export power to the coast."
Gas - demand growth will rebound but cyclical low oil prices and weather will cause near-term pain
Over the past decade gas demand in China increased by 16% a year on average between 2004-2013. Last year however, gas demand growth slowed notably from over 13% in 2013 to around 8% in 2014. Mr Thompson explains, "This was influenced more by cyclical factors. In addition to slowing GDP growth, evolving environmental policies, higher hydro output, mild winter weather in northern China and high domestic gas prices relative to oil were key factors that saw gas demand growth fall sharply. In 2015, the government's decision on domestic gas price reform will be a key influence on demand. While we expect domestic demand growth over the next few years to return to historic levels, a swift return to double-digit growth may not be achievable without lower city gate gas prices."
Oil products - weaker diesel demand outlook to stay
2014 was the fourth straight year of a decoupling relationship between China's GDP and oil demand growth as the effects of the 2009 stimulus began to fade. However, growth in oil demand has varied by oil product since then given each product's distinct drivers: Diesel demand is estimated to have contracted 0.7% in 2014 as commercial transportation demand reduced. Mr Thompson explains, "We believe we are now witnessing a structural change in China's diesel demand as the economy rebalances away from heavy industry. In contrast, gasoline demand, which reflects personal car ownership, maintained a robust growth of 8% in 2014. Healthy growth momentum for gasoline demand will likely be sustained as the economy shifts further towards consumption."
Ms Lim concludes, "The rebalancing of China's economy will play an important role in shaping the energy demand outlook for 2015 and beyond. We believe a recovery in demand for power, coal and diesel in particular is closely tied to the industrial demand outlook. While these commodities will experience a moderate recovery in the medium term as over-capacity is reduced, the on-going transition of China's economy away from an industry-led model suggests their relationship with GDP growth will weaken permanently in the longer-run. As a result, the energy sector must keep attuned to both China's underlying changes and also shorter-term developments to position it for the changing opportunities the market offers."
About Wood Mackenzie
Wood Mackenzie is a global leader in commercial intelligence for the energy, metals and mining industries. We provide objective analysis and advice on assets, companies and markets, giving clients the insights they need to make better strategic decisions. For more information visit: www.woodmac.com
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Monday, 08 January 24
KOSPO TO BUY 80000 MT OF INDONESIAN LOW CALORIFIC VALUE COAL FOR FEB 2024
Korea Southern Power Co., Ltd. (KOSPO), is inviting bids for the supply of Indonesian Low Calorific Value Coal from qualified suppliers for Korean ...
Monday, 08 January 24
SEABORNE TRADE REACHES 12.4BN TONNES - CLARKSONS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
Monday, 08 January 24
CAPESIZES START THE NEW YEAR ON POSITIVE NOTE - BALTIC EXCHANGE
Capesize
This week the capsize market has been marked by a mix of activities and challenges. Despite a slow start following the Christmas and N ...
Friday, 05 January 24
MORGAN STANLEY SEES LOWER OIL PRICES IN 2024 ON OVERSUPPLY CONCERNS - REUTERS
Morgan Stanley sees Brent crude prices anchored near $80 per barrel in the first half in 2024 before declining towards the end of the year as it ex ...
Friday, 05 January 24
INDIA'S COAL OUTPUT RISES NEARLY 11 PC IN DEC TO 92.87 MT - PTI
India’s coal production increased by 10.75 per cent to 92.87 million tonne in December 2023 as compared to the year-ago period, an official s ...
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- LBH Netherlands Bv - Netherlands
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Posco Energy - South Korea
- Anglo American - United Kingdom
- Semirara Mining Corp, Philippines
- Binh Thuan Hamico - Vietnam
- Intertek Mineral Services - Indonesia
- Port Waratah Coal Services - Australia
- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Siam City Cement - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Aditya Birla Group - India
- Marubeni Corporation - India
- Tata Chemicals Ltd - India
- Bhoruka Overseas - Indonesia
- Sical Logistics Limited - India
- Planning Commission, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Deloitte Consulting - India
- Ministry of Mines - Canada
- San Jose City I Power Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Bhatia International Limited - India
- Therma Luzon, Inc, Philippines
- Wood Mackenzie - Singapore
- Bukit Baiduri Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Straits Asia Resources Limited - Singapore
- Globalindo Alam Lestari - Indonesia
- Orica Mining Services - Indonesia
- Formosa Plastics Group - Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indian Oil Corporation Limited
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Edison Trading Spa - Italy
- Bhushan Steel Limited - India
- Borneo Indobara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Cigading International Bulk Terminal - Indonesia
- MS Steel International - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Africa Commodities Group - South Africa
- Semirara Mining and Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Ministry of Finance - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thai Mozambique Logistica
- Bahari Cakrawala Sebuku - Indonesia
- The Treasury - Australian Government
- Georgia Ports Authority, United States
- India Bulls Power Limited - India
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- Carbofer General Trading SA - India
- Attock Cement Pakistan Limited
- Mercuria Energy - Indonesia
- Cement Manufacturers Association - India
- Goldman Sachs - Singapore
- VISA Power Limited - India
- Tamil Nadu electricity Board
- Timah Investasi Mineral - Indoneisa
- Energy Link Ltd, New Zealand
- Parry Sugars Refinery, India
- Pipit Mutiara Jaya. PT, Indonesia
- Uttam Galva Steels Limited - India
- Toyota Tsusho Corporation, Japan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ceylon Electricity Board - Sri Lanka
- The State Trading Corporation of India Ltd
- CNBM International Corporation - China
- Singapore Mercantile Exchange
- Bayan Resources Tbk. - Indonesia
- Samtan Co., Ltd - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Heidelberg Cement - Germany
- Bulk Trading Sa - Switzerland
- Indo Tambangraya Megah - Indonesia
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- Global Green Power PLC Corporation, Philippines
- McConnell Dowell - Australia
- Oldendorff Carriers - Singapore
- Aboitiz Power Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Latin American Coal - Colombia
- Ind-Barath Power Infra Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Coal and Oil Company - UAE
- Meralco Power Generation, Philippines
- Central Electricity Authority - India
- Eastern Energy - Thailand
- Australian Coal Association
- Coastal Gujarat Power Limited - India
- Sinarmas Energy and Mining - Indonesia
- Baramulti Group, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate Of Revenue Intelligence - India
- International Coal Ventures Pvt Ltd - India
- Minerals Council of Australia
- IEA Clean Coal Centre - UK
- Grasim Industreis Ltd - India
- Simpson Spence & Young - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Thiess Contractors Indonesia
- Makarim & Taira - Indonesia
- CIMB Investment Bank - Malaysia
- Salva Resources Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Indika Energy - Indonesia
- Madhucon Powers Ltd - India
- Dalmia Cement Bharat India
- Maheswari Brothers Coal Limited - India
- Electricity Generating Authority of Thailand
- Commonwealth Bank - Australia
- Krishnapatnam Port Company Ltd. - India
- ASAPP Information Group - India
- Xindia Steels Limited - India
- Manunggal Multi Energi - Indonesia
- Gujarat Sidhee Cement - India
- Neyveli Lignite Corporation Ltd, - India
- Coalindo Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Jindal Steel & Power Ltd - India
- Trasteel International SA, Italy
- Eastern Coal Council - USA
- Vijayanagar Sugar Pvt Ltd - India
- Star Paper Mills Limited - India
- PTC India Limited - India
- Larsen & Toubro Limited - India
- Gujarat Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Standard Chartered Bank - UAE
- Economic Council, Georgia
- GMR Energy Limited - India
- AsiaOL BioFuels Corp., Philippines
- ICICI Bank Limited - India
- Meenaskhi Energy Private Limited - India
- PowerSource Philippines DevCo
- Indogreen Group - Indonesia
- Mercator Lines Limited - India
- Kapuas Tunggal Persada - Indonesia
- Sakthi Sugars Limited - India
- Bangladesh Power Developement Board
- Medco Energi Mining Internasional
- Savvy Resources Ltd - HongKong
- Siam City Cement PLC, Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Petron Corporation, Philippines
- Lanco Infratech Ltd - India
- Agrawal Coal Company - India
- Central Java Power - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Interocean Group of Companies - India
- Malabar Cements Ltd - India
- SMC Global Power, Philippines
- Metalloyd Limited - United Kingdom
- GAC Shipping (India) Pvt Ltd
- Ministry of Transport, Egypt
- New Zealand Coal & Carbon
- Romanian Commodities Exchange
- Mjunction Services Limited - India
- Electricity Authority, New Zealand
- Kaltim Prima Coal - Indonesia
- Barasentosa Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- Power Finance Corporation Ltd., India
- Billiton Holdings Pty Ltd - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Indonesian Coal Mining Association
- OPG Power Generation Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Kumho Petrochemical, South Korea
- Pendopo Energi Batubara - Indonesia
- Independent Power Producers Association of India
- Mintek Dendrill Indonesia
- Global Coal Blending Company Limited - Australia
- Kohat Cement Company Ltd. - Pakistan
- European Bulk Services B.V. - Netherlands
- Sojitz Corporation - Japan
- Videocon Industries ltd - India
- Chettinad Cement Corporation Ltd - India
- SMG Consultants - Indonesia
- White Energy Company Limited
- Bharathi Cement Corporation - India
- Ambuja Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Parliament of New Zealand
- Sree Jayajothi Cements Limited - India
- Rio Tinto Coal - Australia
- Vizag Seaport Private Limited - India
- IHS Mccloskey Coal Group - USA
- Orica Australia Pty. Ltd.
- Directorate General of MIneral and Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Renaissance Capital - South Africa
- Riau Bara Harum - Indonesia
- GVK Power & Infra Limited - India
- London Commodity Brokers - England
- Antam Resourcindo - Indonesia
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
- Kobexindo Tractors - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- The University of Queensland
- Kartika Selabumi Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Altura Mining Limited, Indonesia
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