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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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Friday, 30 January 15
U.S. YEAR-TO-DATE COAL PRODUCTION REACHED 65.7 MMST
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.9 million short tons (mmst) of coal ...
Friday, 30 January 15
CAN BULKER CONVERSIONS SPOIL THE TANKER MARKET'S PARTY? - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Oversupply of tonnage has always been in the back of the head of ship owners when it comes to taking advantage of favorable market conditions. As s ...
Thursday, 29 January 15
CAPE MARKET IS STILL STRUGGLING WITH LOW DEMAND AND LOW COMMODITY PRICES
Handy
Supramax rates are heading south with slipping rates all across the block. USG activity is slow with mid-week levels in the mid 8.000s, Fea ...
Wednesday, 28 January 15
MARKET INSIGHT - STELIOS KOLLINTZAS
With most traders having returned to action from year end festivities, we have already seen signs of activity in the specialized product markets. L ...
Wednesday, 28 January 15
CAPES CONTINUED THEIR UPWARD MOVEMENT LAST WEEK - INTERMODAL
COALspot.com: The Dry Bulk market displayed a mirror performance of that of the week prior, with the Capesize market correcting further upwards and ...
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- PowerSource Philippines DevCo
- Bhatia International Limited - India
- Timah Investasi Mineral - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Coal and Oil Company - UAE
- Wood Mackenzie - Singapore
- Singapore Mercantile Exchange
- Straits Asia Resources Limited - Singapore
- Metalloyd Limited - United Kingdom
- PetroVietnam Power Coal Import and Supply Company
- London Commodity Brokers - England
- International Coal Ventures Pvt Ltd - India
- Ambuja Cements Ltd - India
- Tamil Nadu electricity Board
- Bukit Asam (Persero) Tbk - Indonesia
- Vedanta Resources Plc - India
- Dalmia Cement Bharat India
- Rashtriya Ispat Nigam Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- SMC Global Power, Philippines
- Coastal Gujarat Power Limited - India
- Port Waratah Coal Services - Australia
- Mjunction Services Limited - India
- Makarim & Taira - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Orica Mining Services - Indonesia
- Intertek Mineral Services - Indonesia
- Meralco Power Generation, Philippines
- Toyota Tsusho Corporation, Japan
- Independent Power Producers Association of India
- Sinarmas Energy and Mining - Indonesia
- Heidelberg Cement - Germany
- Indika Energy - Indonesia
- White Energy Company Limited
- Riau Bara Harum - Indonesia
- IHS Mccloskey Coal Group - USA
- Power Finance Corporation Ltd., India
- The State Trading Corporation of India Ltd
- CIMB Investment Bank - Malaysia
- Cement Manufacturers Association - India
- Karbindo Abesyapradhi - Indoneisa
- Eastern Coal Council - USA
- Price Waterhouse Coopers - Russia
- Gujarat Electricity Regulatory Commission - India
- Antam Resourcindo - Indonesia
- Ministry of Mines - Canada
- SN Aboitiz Power Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Globalindo Alam Lestari - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Australian Coal Association
- LBH Netherlands Bv - Netherlands
- Ceylon Electricity Board - Sri Lanka
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Indonesian Coal Mining Association
- Holcim Trading Pte Ltd - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Larsen & Toubro Limited - India
- Sakthi Sugars Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Africa Commodities Group - South Africa
- Sarangani Energy Corporation, Philippines
- Uttam Galva Steels Limited - India
- Indogreen Group - Indonesia
- Indo Tambangraya Megah - Indonesia
- Borneo Indobara - Indonesia
- Simpson Spence & Young - Indonesia
- Central Java Power - Indonesia
- Aditya Birla Group - India
- Miang Besar Coal Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- Gujarat Sidhee Cement - India
- Petron Corporation, Philippines
- Planning Commission, India
- Lanco Infratech Ltd - India
- Electricity Generating Authority of Thailand
- Savvy Resources Ltd - HongKong
- Aboitiz Power Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Kepco SPC Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- TeaM Sual Corporation - Philippines
- Agrawal Coal Company - India
- AsiaOL BioFuels Corp., Philippines
- Marubeni Corporation - India
- Sojitz Corporation - Japan
- Jindal Steel & Power Ltd - India
- Kideco Jaya Agung - Indonesia
- Kapuas Tunggal Persada - Indonesia
- ICICI Bank Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Tata Chemicals Ltd - India
- PNOC Exploration Corporation - Philippines
- San Jose City I Power Corp, Philippines
- VISA Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- SMG Consultants - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Indian Oil Corporation Limited
- Baramulti Group, Indonesia
- Rio Tinto Coal - Australia
- Kumho Petrochemical, South Korea
- Bhushan Steel Limited - India
- OPG Power Generation Pvt Ltd - India
- Thai Mozambique Logistica
- Bhoruka Overseas - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bharathi Cement Corporation - India
- European Bulk Services B.V. - Netherlands
- Siam City Cement PLC, Thailand
- Videocon Industries ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Samtan Co., Ltd - South Korea
- Coalindo Energy - Indonesia
- Madhucon Powers Ltd - India
- Formosa Plastics Group - Taiwan
- The Treasury - Australian Government
- Manunggal Multi Energi - Indonesia
- Ministry of Transport, Egypt
- Barasentosa Lestari - Indonesia
- Minerals Council of Australia
- Mercuria Energy - Indonesia
- Georgia Ports Authority, United States
- Salva Resources Pvt Ltd - India
- Central Electricity Authority - India
- Bukit Baiduri Energy - Indonesia
- Standard Chartered Bank - UAE
- GMR Energy Limited - India
- GVK Power & Infra Limited - India
- Grasim Industreis Ltd - India
- Merrill Lynch Commodities Europe
- Latin American Coal - Colombia
- PTC India Limited - India
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Parry Sugars Refinery, India
- Vizag Seaport Private Limited - India
- Cigading International Bulk Terminal - Indonesia
- Malabar Cements Ltd - India
- Attock Cement Pakistan Limited
- South Luzon Thermal Energy Corporation
- Eastern Energy - Thailand
- Electricity Authority, New Zealand
- Chettinad Cement Corporation Ltd - India
- Mintek Dendrill Indonesia
- Billiton Holdings Pty Ltd - Australia
- Thiess Contractors Indonesia
- Wilmar Investment Holdings
- Trasteel International SA, Italy
- Chamber of Mines of South Africa
- Jaiprakash Power Ventures ltd
- Bulk Trading Sa - Switzerland
- Orica Australia Pty. Ltd.
- Global Coal Blending Company Limited - Australia
- Medco Energi Mining Internasional
- Romanian Commodities Exchange
- Xindia Steels Limited - India
- Essar Steel Hazira Ltd - India
- New Zealand Coal & Carbon
- Energy Link Ltd, New Zealand
- Renaissance Capital - South Africa
- Mercator Lines Limited - India
- Anglo American - United Kingdom
- Global Green Power PLC Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Star Paper Mills Limited - India
- Iligan Light & Power Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- ASAPP Information Group - India
- Semirara Mining and Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- McConnell Dowell - Australia
- Parliament of New Zealand
- Carbofer General Trading SA - India
- Krishnapatnam Port Company Ltd. - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- MS Steel International - UAE
- Pendopo Energi Batubara - Indonesia
- Edison Trading Spa - Italy
- Energy Development Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Deloitte Consulting - India
- Neyveli Lignite Corporation Ltd, - India
- Commonwealth Bank - Australia
- Posco Energy - South Korea
- Indian Energy Exchange, India
- Ind-Barath Power Infra Limited - India
- Directorate Of Revenue Intelligence - India
- Binh Thuan Hamico - Vietnam
- Bangladesh Power Developement Board
- Sree Jayajothi Cements Limited - India
- Interocean Group of Companies - India
- Siam City Cement - Thailand
- Semirara Mining Corp, Philippines
- Bayan Resources Tbk. - Indonesia
- Oldendorff Carriers - Singapore
- Goldman Sachs - Singapore
- Therma Luzon, Inc, Philippines
- India Bulls Power Limited - India
- Altura Mining Limited, Indonesia
- CNBM International Corporation - China
- The University of Queensland
- Australian Commodity Traders Exchange
- Maheswari Brothers Coal Limited - India
- Ministry of Finance - Indonesia
- Banpu Public Company Limited - Thailand
- Bukit Makmur.PT - Indonesia
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Economic Council, Georgia
- Sical Logistics Limited - India
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