China's coal output has slightly slowed after rapid growth over the past two years. The energy supply situation is now more stable, which allows the government to concentrate on structural changes that will last a long time.

According to the National Bureau of Statistics, China's mines produced 1.858 million tonnes of coking coal in the first 5 months of 2024.

The production fell by 54 millions tonnes (-3%) in comparison to a year ago, following growth of 98,000,000 tonnes (+5%) during the first five-months of 2023 and of 193,000,000 tonnes (+12%) during 2022.

According to data separate from the customs, some production was replaced by imported goods, which increased from January to May by 23 million metric tonnes (+13%) compared with a year ago.

Imports of coal for steelmaking are often higher quality coals. Lower-quality coals that are used in power generation are more common and are landed along the east and south coasts far away from the coal-producing regions.

Due to the limited rail network in Indonesia and Australia and the high cost of transporting coal overland, it is often cheaper to import bulky coal by sea for power generators located in the south and eastern.

The government has ordered a flat-out increase in coal demand over the past two years to avoid a repeat of fuel shortages or electricity scarcity by the fall of 2021.

Chartbook: China coal production

Shanxi, the province with the highest coal production in 2023, produced 1,357 millions tonnes of coal, a significant increase from the 778 million tons in 2016.

In the first five months 2024, the province has some of the most productive and largest mines in the world. However, its production fell by 82 millions tonnes (-15%).

Since the mid-1990s, the central government has been pushing for the closing of small, old, inefficient, and dangerous mines, to focus production on more modern, efficient, and technologically advanced mines.

In 2023, the four top producing regions of Shanxi (Inner Mongolia), Shaanxi (Shaanxi), and Xinjiang (Xinjiang) located in the north-west and northwest will account for 82% of the national output, up from 72%.

According to the state-run news agency Xinhua, the government announced that Shanxi will "voluntarily reduce its coal production for the first year this after seven consecutive rapid years."

"Shanxi will continue to optimize production capacity and increase the proportion advanced production capacity".

As part of the industrial modernisation, the province has also committed itself to increasing production of non-fossil sources of energy such as wind and solar on its northern plains.

BREATHING ROOM

The massive expansion in coal production by Shanxi between 2022 and 2023 played a crucial role in ensuring energy security, as the central government struggled to deal with the rapid growth of electricity consumption and irregular hydro generation.

The large-scale deployments of wind and solar power have started to meet an increasing portion of electricity demand growth, relieving a little pressure on coal-fired generation.

A prolonged drought in 2022 and 2023 led to a sharp reduction of hydro power production, forcing the system to rely more on thermal power, mainly coal-fired.

Hydro generation recovered after heavy spring rains of 2024. This allowed the country to fully utilize the newly constructed massive hydro dams along the Yangtze River system.

The thermal power generation from coal-fired units fell a little in May 2024, compared to the same month one year ago, as outputs from solar, wind and hydro increased.

The central government has been able to rationalise the coal production, and plan a gradual shift in its role within the electricity system.

The National Development and Reform Commission (NDRC), the country's top planning agency has announced plans to create a "coal reserve system", which could provide up to 300 millions tonnes of fuel annually by 2030.

Instead of stockpiling fuel that would degrade over time, a reserve of high-quality mines will be held in reserve, allowing for rapid production in an emergency.

The reserve capacity is designed to be able to react to "extreme circumstances" such as "severe fluctuations on the international energy markets, adverse weather conditions and dramatic changes in demand and supply stability".

It is likely that it will be used to offset droughts in the future, heatwaves and extreme winter colds, fluctuations in gas prices or embargoes imposed by America and its allies.

The exact details of how the reserve system is to operate are still unclear, but it's likely that mines in Shanxi, Inner Mongolia and Shaanxi will play a significant role.

The planners appear to envision an electricity system where coal is essential as a reserve for reliability, while renewables, nuclear and hydro power a growing share of the existing load.

After two years of rapid growth, the slight slowdown of coal production in the year 2024 is a sign of what will happen to the system over the next decade.

Related columns

China's increasing hydro and solar use set to cap coal usage in 2024

- China's Hydro Generators Wait for Rains(March 24, 2020)

China's renewables deployment signals future peak for coal (19 January 2024)

- China's hydropower is depleted by the drought, forcing it to switch to coal (16 June 2023)

John Kemp is an analyst of the market. John Kemp is a market analyst. Follow his commentary on X https://twitter.com/JKempEnergy (Editing by Miral Fahmy)