The Unimaginable: Peak coal in China – CITI Research

One of the central themes in Carbon Tracker’s work is getting parts of the financial system to challenge their assumptions. Our report on ‘Wasted Capital and Stranded Assets’ earlier in 2013 noted that the announcement by China that it would peak coal demand within the current five year plan could have major implications for the future coal market. The assumption that Chinese coal demand is insatiable has underpinned the future pricing assumptions of the market, and justified capital expenditure on bringing more production onstream.

It is refreshing to see Citi respond to this issue by bringing forward its assumption abut when coal demand may peak in China. Citi conclude that:

‘one thing is clear – investors now need to reassess the central probabilities around Chinese coal and energy demand and re-price the wide range of affected assets’.

Peaking Chinese coal demand
They believe that the combination of ‘slower power demand growth, higher generation from non-coal sources and greater coal power plant efficiency, [means] coal demand should peak before 2020.’ There are in fact five drivers around which Citi analysts draw this conclusion:


Citi also link this to the concept of unburnable carbon:

“The next decade is set for continued disruption of how the world generates its electricity. Changes in the power mix for each of these regions have important ripple effects for globally traded oil, gas, and coal markets, unburnable carbon, stranded assets and other individual sectors, including mining and renewables.”

“Citi’s Metals and Mining team initiated the End of the Supercycle theme in a report “Metals and Mining: Super Cycle Sunset…” (Mar 21, 2012). The problem of the hard asset or hard liability regarding the mining sector naturally comes to the forefront. In the thermal coal sector on the energy side, this could evoke the fear of unburnable carbon – stressed coal assets that may not be used as a result of a much weaker-than-expected demand environment.”

The changing mood of the sell-side

Alongside major research pieces on the future of thermal coal from Deutsche Bank and Goldman Sachs, this shows how the mood is changing amongst mainstream coal analysts to question whether coal demand can continue rising for ever.