The emergence of China as a global economic power has not been without its
birth pangs and the current coal market is testimony to this. Traditionally the
coal market has been controlled by mature economies that functioned along
balanced lines of supply and demand. The emergence of China and India as major
forces in the international market has shifted this balance of power from mature
economies to the developing economies of China and India.
Of late Chinese Central Government policy has caused wide swings in the
supply of Chinese coking coal and thermal coal to the international Asian
markets. This has resulted in huge increases in demand for coal from producers
in Australia, Canada, Indonesia, USA and Russia.
Additionally since the late 1990s the liberalised Chinese economy has been
growing by between nine to 12 per cent per annum. The corresponding rise in the
standard of living of their 1.4 billion people has resulted in a strong demand
for raw materials, initially met by domestic production and more recently met by
the importation of raw materials including iron ore, oil, coking coal and
thermal coal.
Commensurate with this growth in China has been the emergence of India (pop
one billion) as another major developing economy in the region. Whilst the
Indian standard of living is lower than that of the Chinese, this subcontinent
still has some 300 million people with middle class consumption demands. India
is a major importer of oil, coking coal and thermal coal. It exports iron ore to
China with growth parallel to China (seven to nine per cent per annum).
These combined new demands from India and China have put unprecedented
pressure on the global supply of coking and thermal coals. These pressures are
reflected in the current world spot prices for coking and thermal coals which
are at historically high levels.
Whilst current demand from China and India is high it is anticipated that new
projects will partially satisfy this increasing demand. Expectations are that
overall thermal and coking coal prices will rise steadily.
This paper seeks to identify the potential effects of Chinese and Indian
economic growth on the international markets for coal.