China’s growing appetite for coal-intensive steel, aluminium, cement and electricity puts it out of sync with falling global coal use.
NEW ANALYSIS: China’s industrial recovery means it is producing nearly 60% of the world’s steel, aluminium and cement this year.
This coal-intensive recovery will make it hard to cut coal use, at a time when China pledged a pathway to decarbonisation, and as coal use is falling across the world.
In this report, we show how China’s production of coal-intensive products is accelerating. In October, steel production rose 13% year-on-year, aluminium rose 11%, cement rose 10%, and electricity production rose 7%. China’s GDP data confirms that the industrial sector provided a higher proportion of its economic growth this summer than at any time since at least 2016. Consequently, China has produced almost 60% of the world’s steel, aluminium and cement so far this year. In addition, steel and aluminium exports have collapsed, meaning China itself is using more of these products. Meanwhile, China’s coal-fired electricity generation is unchanged from last year, because of high electricity demand outpacing clean electricity investment. Coal generation in the rest of the world, by comparison, is expected to fall by about 12% this year, meaning China’s share of global coal generation will rise to 53%.
“China’s coal burn is expected to remain unchanged or even increase slightly this year, whilst falling in the rest of the world. Growth in the demand of coal-intensive products of steel, aluminium, cement and electricity is outpacing the speed of clean energy deployment. Achieving President Xi’s 2060 carbon neutrality pledge will be a massive climate undertaking, requiring not only a decarbonisation of the energy sector, but also a restructuring of the coal-intensive growth model. The 14th Five-Year Plan must become an opportunity for China to embark on such an undertaking.”
“China’s growing demand for coal-intensive products is at odds with its carbon neutrality commitment. Fulfilling this commitment requires urgent actions to be taken to change the status quo. Attention should also be given to the issues of inclusiveness and equity that may arise from a coal phase-out and its adverse impacts on local communities.”
China’s industrial recovery risks rising coal
Production rose 12.7% for steel, 9.7% for aluminum, 9.6% for cement and 4.6% for electricity in October, compared to October last year. This is according to official NBS China production data published on Monday 16th November. This shows an acceleration of the growth of these coal-intensive products, which have been rising year-on-year since April, as the economy propelled itself out of Q1 when production was down with much of China on lockdown. So despite China’s lockdown in Q1, production year-to-date is up: up 5.5% for steel, 3.5% for aluminium, 0.4% for cement and 1.4% for electricity, according to China’s National Bureau of Statistics.
China’s summer of industrial growth. China’s official GDP data shows that the secondary industry over summer was responsible for the highest proportion of China’s GDP growth since at least 2016. Secondary industry includes coal-heavy economic activity from the supply-side (including mining and production of steel, aluminum, cement and electricity), and from the demand-side from manufacturing. Secondary industry powered 61% of China’s Q2-2020 growth, compared to just 35% average in the previous three years. The tertiary industry growth was minimal, as its share of total GDP growth sunk to 33% in Q2-2020, from 60% average in the previous three years. This industry-driven growth has coincided with large public investments in infrastructure (e.g., airports, roads, railways, and industrial parks), as the government seeks to pull the economy out of the post-pandemic doldrums, through recourse to its old stimulus playbook, though at a lesser scale this time, as compared with the post-2008 stimulus package.
It means that this year so far China has produced almost 60% of the world’s steel, aluminium and cement. The figures in the graphic are for production from Jan to Sep, so it doesn’t include China’s bumper growth in October; year-end share may be even higher. This vastly exceeds the size of China’s economy and population, which are both about 18% of the world total.
This rise was caused in part by the acceleration of China’s demand and in part because of shrinking demand elsewhere:
Steel: According to the World Steel Association, China’s crude steel production rose by 4.7% in Jan-Sep 2020, year-on-year, compared to a fall of 12.2% in the rest of the world. That means China’s share of world steel production rises to a record 58%, up from 51% in 2018.
Cement: There is little global data on cement production. We used a report from Field Investment Research, which projected for China’s cement production to fall 0.3% in 2020, and cement production in the rest of the world to fall 6.4%. That means China’s share of world cement production would rise to 58.9% in 2020. The historic cement proportion is calculated from IEA data.
Aluminium: According to World Aluminium, China’s primary aluminium production rose by 3.3% in Jan-Sep 2020, year-on-year, compared to a fall of 0.6% in the rest of the world. That means China’s share of world aluminium production rises to a record 57.4%.
Electricity: At Ember we track global electricity production – According to the National Bureau of Statistics, China’s electricity consumption for Jan-Oct was up 1.4% year-on-year; we estimate the rest of the world is down 3.3%.
China is producing these coal-intensive products for domestic use, not for export, as steel and aluminium exports collapsed. For steel, China exported less than 2% of its production in the last five months, compared to 7% on average over the last decade. For aluminium, China exported just 1% of its production in the last five months, compared to 12% on average over the last decade. China even briefly turned into an aluminum importer for the first time in 15 years in July and August. The export data includes the semi-finished exports of rolled steel and rolled aluminum; it doesn’t include exports of finished goods that use steel and aluminum as part of their manufacturing process. Less than 1% of China’s cement and electricity are typically exported.
China’s coal-fired electricity generation is almost unchanged year-to-date, compared to a 12% fall in the rest of the world. China’s thermal generation – composed mostly of coal generation – is so far down only 0.4% in 2020 (January-October), according to NBS data. Most other countries have seen very large falls, led by the US and the EU, which both fell by 24% during Q1-Q3, year-on-year. However, this is not only due to Covid-19 lockdowns: coal generation saw large falls in Q1 and also in Q3 when countries were not in full lockdown.
Coal generation in India and the rest of Asia will fall in 2020, while the coal collapse continues in the US and Europe. If we assume that Q4 changes at the same rate as Q3 in each country, then we calculate that China’s coal generation will rise slightly by 0.1% in 2020, compared to a 10.2% fall in the rest of the world. This would mean China’s share of world coal generation would rise from 50.2% in 2019 to 52.9% in 2020.
A short-term boost in hydro-electricity generation has helped to hide the risk of further increases in China’s coal-fired electricity, as clean electricity growth fails to match the rise in electricity consumption. Electricity demand is rising very quickly – by 5.8% year-on-year for the period from May to October. It is simply too fast for new wind, solar, hydro and nuclear investment to keep pace with the current level of investment. That means thermal generation rose 3.0% by year-on-year for the period from May to October. However, rainy conditions since June have resulted in above-average levels of hydro electricity, which has hidden potential future increases in thermal (coal) generation in the coming months.
We chose the four commodities of steel, aluminium, cement and electricity, because they are the source of most of the world’s coal burn, and especially China proportionally more on coal to make them. The graphic below shows the extent to which China is more dependent on coal to make these commodities than the rest of the world. It shows that so far in 2020, China made 70% of the world’s coal-made steel, 75% of the world’s coal-made aluminum, 83% of the world’s coal-made cement, and 53% of the world’s coal-made electricity.
We calculated these numbers from a variety of sources:
Steel: Used a fixed factor of 90% of China’s steel from coal, and 70% globally, implied from IEA data.
Cement: Used a fixed factor of 99% of China’s steel from coal, and 70% globally, from IEA’s Cement roadmap.
Aluminium: Used World Aluminium fuel mix data analysed by Ember.
Electricity: Used Ember global electricity production, including coal generation.
In conclusion, China is facing another year of unchanged, or even slightly rising coal consumption, as coal falls rapidly in the rest of the world. Although coal-heavy industries have decarbonisation options, those options generally rely on electricity (either directly, or via green hydrogen), meaning these sectors will compete for new clean electricity. There is a finite rate at which clean electricity can be built, even in China. China will find it very hard to quickly cut its coal burn whilst economic growth is focused so intensively around using more steel, aluminium, cement and electricity.