three river gorges dam

World’s Most Powerful Dam Stonewalls Coal Shipments to China

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August 1, 2014

three river gorges dam
On July 24, 2012, the peak of 71,200 cubic maters per second hit Three Gorges Dam. At full power, Three Gorges reduces coal consumption by 31 million tonnes per year, avoiding 100 million tonnes of greenhouse gas emissions,[62] millions of tonnes of dust, one million tonnes of sulfur dioxide, 370,000 tonnes of nitric oxide, 10,000 tonnes of carbon monoxide, and a significant amount of mercury. Image: China Yangtze Power Company
Aug. 1 (Bloomberg) — Record production of hydropower from China’s Three Gorges and newer dams is displacing so much coal that rates to transport it have plunged to about record lows, roiling the shipping market.

Daily earnings for Panamaxes, vessels that are about 750 feet long and get most of their spot cargoes from hauling coal, slumped as much as 76 percent this year, getting to within $26 of an all-time low. China started hydroelectric plants this year with enough generation to replace 26 million tons of coal, or about 370 cargoes, data compiled by Bloomberg show. The extra power means less imports and weaker freight rates, Morgan Stanley estimates.

While global shipments of iron ore and grain are rising, China’s decreasing appetite for imported coal is a challenge to transporters already seeing weaker rates because of an oversupply of Panamaxes. The world’s second biggest economy’s efforts to curb air pollution will help cut imports of power- plant coal by 2.7 percent this year, according to Goldman Sachs Group Inc., following average increases of 29 percent annually from 2010 to 2013.

“Because of reduced buying of coal domestically, the price has fallen, therefore there’s less incentive to import,” Georgi Slavov, head of raw materials research at Marex Spectron Group, an energy and shipping derivatives brokerage in London, said by phone on July 23. “It’s having an impact already,”

Panamax Rates

Panamaxes earned $4,923 a day as of July 31, according to data from the Baltic Exchange in London. Rates fell as low as $3,362 at the end of June. The all-time low was $3,336 in Sept. 2012.

The vessels will make an average of $12,900 this year, recover to a daily average of $17,250 next year, and rise to $17,900 in 2016, according to the median of analyst estimates compiled by Bloomberg.

China increased its hydroelectric capacity by 13 gigawatts in the first half, according to the China National Energy Administration. That’s the biggest first-half expansion since at least 2009 and more than enough to power Hong Kong.

China Three Gorges Corp., which built and operates the world’s largest hydropower project on the Yangtze river, completed two more dams this year which, as of July, had 20.3 gigawatts of power-generating capacity. One gigawatt translates into about 2 million tons of coal a year, according to a formula from Bloomberg Intelligence.

Replacing Coal

The largest of the two dams is the 286-meter-high (937 feet) Xiluodu project, a wall of concrete and steel spanning the Jinsha river on the border of Sichuan and Yunnan provinces in the country’s south. It’s is the second-biggest hydropower project in China, after Three Gorges. The other new dam is the Xiangjiaba, to the northeast on the Jinsha river.

“As concerns around pollution intensify, we believe this trend will lead to a gradual deceleration in coal-fired power generation,” Goldman Sachs said in a July 23 report. “A lower rate of demand growth from the power sector will result in a peaking in import volumes, followed by a decline.”

Growth in Chinese gross domestic product is forecast to slow to 7.4 percent this year from 7.7 percent in 2013, according to 62 economists surveyed by Bloomberg.

Other Cargoes

Seaborne imports of thermal coal in China will slide for the next four years, reaching 75 million metric tons by 2018, half the level of last year, Goldman Sachs said. Coal imports to India, Japan and South Korea will keep growing, it estimates.

The benchmark price for Chinese power-station coal was at 480 yuan to 490 yuan a ton, the lowest since December 2007, in the week ended July 27, data from the China Coal Transport and Distribution Association show.

The erosion of Chinese coal demand isn’t holding back global trade in the fuel, which will expand 5 percent in 2014, according to Clarkson Plc, the world’s largest shipbroker.

Global shipments of iron ore, the single-biggest cargo for dry-bulk vessels, will expand 10 percent to 1.3 billion metric tons a year, it estimates. Total trade in grains will rise 5 percent, according to the company’s most recent estimates.

Panamaxes are experiencing faster fleet growth than any other ship. Total capacity will rise 7 percent this year, two percentage points more than the trade in thermal coal, Clarkson predicts.

An Indonesian ban on exports of raw mineral ores has also exacerbated an oversupply of the vessels. The country, previously the world’s largest shipper of nickel ore and bauxite, banned exports in January. China was the largest buyer of the two ores from Indonesia before the ban, according to data from the International Trade Centre’s TradeMap, a venture between the World Trade Organization and United Nations.

The greatest growth in hydropower is in the south of China which is also where the largest amount of coal is imported, Diana Bacila, a coal analyst with Nena A/S, an Oslo-based adviser to utilities and energy traders, said by phone on July 24.

“Stronger hydropower production in South China is directly impacting imports,” she said. “It just cuts coal demand by replacing with hydropower generation.”

–With assistance from James Herron and Rachel Graham in London.

Copyright 2014 Bloomberg.

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