Power Consumption Efficiency a Top Priority for China in 2011

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Steel production in China in 2011 will be affected by the central government's drive to increase the efficiency of power consumption and reduce industrial emissions by boosting clean and renewable power sources. A reduction in two-figure economic growth rates will be accompanied by a closer watch on the impact that consumption has on the sources of coal and water and the parallel dangers to the environment and the health prospects of the population.

The National Energy Administration's (NEA) Energy Saving and Science Equipment Department has said that the government plans to cut energy consumption by 31% per unit of GDP by 2020. Reductions based on this format are targeted at 20% in the 11th Five Year Plan (2006-10), 17.3% in the 12th Five-Year Plan (2011-15) and 16.6% in the 13th Five-Year Plan (2016-20). In an effort to free a major proportion of power generation from a dependency on coal feeds, a reorganization of power generation is planned. Hydropower is set for a 380,000-megawatt (MW) target by 2020, nuclear power for 80,000 MW and nonphysical-resource-fed power, such as wind and solar, for 200,000 MW. By 2015, 13 hydropower bases are planned to boost hydropower to 280,000 MW. Projects will be launched on the upstream Yellow River, middle reaches of the Yangtze, and on the Hongshui, Wu and Lancan rivers.

Caught up in this balancing act between resource availability and power generation is the fate of the 7,000 small coal-mining operations that the government is said to be planning to shut down by 2015. This would leave 4,000 mines in operation out of the current total of 11,000.

The NEA estimates total primary energy consumption to reach the equivalent of 4.2 billion tons of coal by 2015, of which the physical coal supplies will contribute 2.67 billion tons. Renewable energy resources are estimated to be the equivalent of 346 million tons of coal, or about 8% of primary energy use by that date. By 2015, it is estimated that total crude oil demand will be 500 million tons per year. Domestic production will be 200 million tons per year. Natural gas demand will hit 260 billion cubic meters, while domestic production will be 160 billion cubic meters per year.

In the drive for the rationalization of the coal industry, the government is reported to be backing the construction of up to 20 large coal mines with production capacities of more than 50 million tons per year that will produce 65% of the country's total coal. During the 12th Five-Year Plan, starting in 2011, there will also be a focus on open pit mines with a capacity of 10 million tons per year. The current total output of open pit mines is 250 million tons per year.

China will see advances in domestic metal & mineral resource supply projects in 2011. New iron ore reserves of more than 15 billion tons have been discovered, according to the Working Conference of National Metal Resources Management, and a number of new large iron ore mines are currently in the planning phase, with major activity in Yanzhou, Anshan and Jidong. A new coal mine discovery at Changtu, Liaoning province, has a preliminary reserve estimate of more than 1 billion tons of coal, with 70% prime quality long flame and 30% gas coal. The Northeast Bureau of Coalfield Geology in the province says that as exploration work proceeds, the coal reserve estimates may be revised upwards.

All these mega trends and the measures directed by central and regional authorities will affect the steel and coal industries strongly in 2011. Regional authorities are already cutting and rationing power allocations to steelmakers to meet power efficiency targets, which will negatively affect annual production targets for some plants. But, at the same time, other plants in the rationed regions are adding production capacity by upgrading equipment and installing new, larger blast furnaces. This may contribute to the continued expansion of total production capacity. The Ministry of Industry and Information Technology reported that September 30, 2010, was the final day for "the elimination of backward industrial production capacities." This was supported by the fact that many regions claimed to have finished the job of scrapping outdated capacity.

The World Steel Association (WSA) reported in October that weakness in China's real estate market will be one of the factors causing global steel consumption growth to fall to 5.3% in 2011 from the 13.1% growth forecast for 2010. WSA estimates Chinese steel consumption growth will be 3.5% in 2011, down from a rate of 6.7% in 2010. But, says WSA, total global consumption may hit a record of 1.34 billion tons in 2011.

Various sources, some with two decades of experience of growth in China, have told IIR that vast swathes of new, mid- and upper-end domestic accommodation now stand empty, and that this is not the type of dwelling space that can be taken up by the incoming tide of workers from the countryside into the urban areas. But anecdotal evidence supports the view that the consumption drivers for manufactured goods is still running strongly in urban areas.

The International Monetary Fund (IMF) forecasts an average growth of 9.6% in the Chinese economy in 2011, down from a projected 10.5% in 2010. The IMF says growth will continue to be driven by domestic demand. The IMF reports that sustained growth in 2010 of retail sales and industrial production indicates that private-sector activity has progressed beyond the lift given by the government stimulus measures supporting public investment and credit growth put in place to offset the global downturn. This must bolster the steel, metals and manufacturing industries, as seen in the continued demand for new autos. Private domestic demand is set to contribute 66% of near-term growth, and government activity 33%, and the contribution from net exports will be near zero, says the IMF report. The Australian Bureau of Agricultural and Resource Economics (ABARE) forecasts the country's total iron exports increasing 10% to 677 million tons in 2011, pushed by Chinese steelmakers. The agency forecasts that coal exports will increase 10% to 167 million tons, again driven by Chinese and Asian demand.

The import/export balance broadly reflects and supports the aims of the Chinese government in wanting to emphasize domestic demand and living standards, and will enable an environment conducive to reforms to benefit the majority of the population.

The average per-capita income is still only about $3,700 per annum in China, placing it in the lower half of global income rankings. If the income average is taken for the metropolitan areas, this figure at least doubles, demonstrating not only the vast demand pool of new consumers, but also the prospect of structural economic problems with the potential for severe social outcomes unless carefully handled.

The drive to upgrade the country's scientific innovation ability and accelerate educational and economic reform and development to aid the goal of building a "moderately" prosperous society in an all-round way was a theme presented by President Hu Jintao at the recent Central Committee presentation of the 12th Five Year Plan in Beijing. Progress toward this goal in 2011 will give indications of how deep reforms must go to create conditions for sustained innovation in industry and civil society, as both will remain power- and product-hungry.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.