China halts new coal mines as IEA highlights global demand stall

China has announced that it will cease to approve any new coal mines for the next three years to address a coal supply glut and help combat its rising air pollution problem.

The announcement, made by the head of China’s National Energy Agency (NEA), will also see around 1,000 existing small mines closed during 2016. It comes at a time where China has pledged to peak its greenhouse gas emissions by 2030 and rapidly increase the proportion of renewables in its power mix.

The move is expected to address the overcapacity of coal production in China as the country gradually moves away from using the fuel for power and shifts its economy away from energy-intensive industry. China closed a similar number of mines in 2015, according to the NEA. However, the supply glut means it will be a number of years before a cut in Chines production will affect the excess in the market.

The news comes as various reports are suggesting the world may be reaching peak coal consumption. Most recently the International Energy Agency (IEA) released its annual Medium-Term Coal Market Report, in which it says that global coal demand has stalled after a decade of aggressive growth.

The decline in Chinese demand (which represents around half of global demand) is the prime reason for the sharp lowering of the IEA’s five-year global coal demand growth forecast. The IEA has lowered the estimate by 500mn tonnes of coal equivalent. Greater policy support for renewable energy and energy efficiency will also dent coal demand growth, says the IEA.

The report describes the ‘tremendous pressure’ facing coal markets and highlights the decline in Chinese coal demand in 2014 with preliminary figures indicating an accelerated decline in 2015. A decline in coal consumption in China for two consecutive years would be the first since 1982, says the IEA.

The IEA presents a peak coal scenario where the decline in China continues, seeing global coal demand fall by around 0.1% per year to 2020 where it reaches 5,500mn tonnes – compared to a 0.8% per year growth in the report’s central forecast.

Away from China the report forecasts a modest increase in demand in other markets, as a decline in Europe and the US is offset by growth in India and Southeast Asia.

Coal prices continue to remain at low levels – below $50 per tonne in Europe – with these expected continue due to the global oversupply (led by China).

Global oversupply is continuing to result in difficult conditions for coal mining in the US and Arch Coal, the second largest mining company in the country, has filed for bankruptcy. As well as declining demand and low prices, the indebted company and other US coal miners are facing competition from natural gas and proposed constraints for coal generators under the US Clean Power Plan.

Despite a slowdown, the world is still forecast to burn a lot of coal. The IEA report says that carbon capture and storage will be needed to tackle the carbon emissions from the coal sector over the next five years.