Declining China, SEA coal demand puts Australia’s coal industry at risk

The decreasing demand is coupled with the market’s shift to cleaner power sources.

Australia’s coal industry is facing uncertainty amidst decreasing demand and shifting supply patterns from its key markets, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).

Amandine Denis-Ryan, CEO, IEEFA Australia and the report’s lead author, explains: “China’s energy transition reached a major turning point in the first half of the year: its power emissions fell by 3% as growth in solar generation counterbalanced the rise in electricity demand. Total coal consumption also dropped, with use of fossil fuels reaching plateaus in other areas too.”

“This is indicative of a pattern that we’re seeing across the region, as renewable energy and battery storage become more cost-competitive than coal-fired power generation. Investments in gas and nuclear are also increasing in the region, further eroding demand for coal,” the expert added.

There is also a large pipeline of new coal power plants in China, but utilisation rates are expected to drop. Average utilisation rates of coal power plants have already dropped to just around 50% in 2024 and are forecast to halve by 2050.

In Southeast Asia, the pipeline of new coal power generation has significantly declined in recent years as countries move away from coal towards renewables and gas. There is now 10 times more renewable capacity and three times more gas capacity in the pipeline than coal capacity, IEEFA said.

In terms of supply, China is increasing its focus on domestic coal production, as well as shifting to suppliers closer to home, such as Indonesia and Russia.

“Indonesia, the leading supplier of thermal coal to China and Southeast Asia, has captured the majority of the growth in thermal coal imports into both markets,” says Denis-Ryan. “China also nearly tripled its imports of Russian coal following the invasion of Ukraine.”

Hopes of these trends reversing with a shift to more advanced and efficient coal plants are likely to be met with disappointment, with financial drivers favouring the use of lower-grade coal such as that supplied by Indonesia and produced domestically, the expert said.