“During the course of this year it has become increasingly apparent China is struggling to satisfy its domestic demand and that situation is likely to continue into the foreseeable future,” said Energy Economic’s Clyde Henderson.

The country is currently experiencing major coal shortages which has prompted government officials to request coal producers to increase output to meet power plant demand. With winter approaching there is an increasing probability of a widespread power shortage unless producers are able to meet supply contracts.

The ramifications for Australia as part of the Pacific rim club, which includes Indonesia and China, is while China’s exports remain relatively constant as they concentrate on supplying domestically, Australian steam coal export demand rises.

“It looks like Chines coal exports will only grow slowly going out in the future, which means a really big fill-up for Australian steam coal exporters. Although Indonesia are producing more coal all the time and is likely to produce a lot more coal next year – as China stays flat the market still needs increased amount of Australian steam coal,” said Henderson.

“But Chinese export volumes will continue to be volatile. Additional Chinese steam coal will come on the market from time to time and that will hit the spot price quite hard, but hopefully from the Australian perspective those episodes will be quite short,” he said.

“In five years time China will probably be exporting an additional 10 million tonnes of thermal coal, but there will be lots of ups and downs between times.”

“The Chinese export slowdown is a lucky break for Australia. With the exchange rate Australia could have been left out in the cold if both China and Indonesia expanded”.

“China has a fixed exchange rate against the US dollar at present and Indonesia has not changed much against the greenback. If China had carried on expanding rapidly it would have been bad news for Australia – we wouldn’t have had the scenario we have now where spot prices have reacted to the change in the US dollar, giving us a much higher spot rate and the expectation of a lot higher contract prices next year.”

Henderson said China’s coal crisis would have little impact on other big coal producing countries in the European and Atlantic markets, considering the large split between those markets and the Pacific, mainly due to high ocean freight rates.

To cope with China’s shortage, the country’s National Development and Reform Commission (NDRC) had asked coal producers, specifically state-owned key coal mines to increase production and honour supply contracts.

On top of this the Ministry of Railways and the Ministry of Communications has ordered state-owned railway, highway and waterway transporters to deliver coal on time to power plants.

The country’s seven major power suppliers have also recently filed an urgent petition with the central government to seek help in negotiating down escalating coal prices. The petition asked the government to issue explicit directives on coal and electricity prices to avoid a power supply crisis.