1 00:00:10,880 --> 00:00:14,560 Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast. 2 00:00:14,640 --> 00:00:19,400 Speaker 1: I'm Tracy Alloway and I'm Joe. Wasn't so, Joe. We've 3 00:00:19,440 --> 00:00:23,400 Speaker 1: been talking quite a bit about supply chains. That's correct 4 00:00:23,520 --> 00:00:26,000 Speaker 1: for now, like pretty much like well over a year. 5 00:00:26,040 --> 00:00:29,800 Speaker 1: But yes, absolutely it's not going away. Yeah, that's probably 6 00:00:29,880 --> 00:00:33,599 Speaker 1: an understatement. So one of the things we have definitely 7 00:00:33,680 --> 00:00:35,959 Speaker 1: learned over the past year or so is that when 8 00:00:36,080 --> 00:00:39,800 Speaker 1: one part of the global supply chain I guess flaps 9 00:00:39,880 --> 00:00:44,360 Speaker 1: its wings or experiences a disruption or whatever, it tends 10 00:00:44,400 --> 00:00:46,880 Speaker 1: to ripple through a bunch of other things. And I 11 00:00:46,880 --> 00:00:50,559 Speaker 1: think that's arguably what we've seen with energy prices and 12 00:00:50,600 --> 00:00:54,320 Speaker 1: with the big surge in prices over the past few months. Yeah, 13 00:00:54,360 --> 00:00:58,040 Speaker 1: I think like commodities, and of course commodities are very 14 00:00:58,080 --> 00:01:01,480 Speaker 1: sort of heart you can't deal them from global industrial 15 00:01:01,520 --> 00:01:04,640 Speaker 1: processes and supply change in general. Like it feels like 16 00:01:04,640 --> 00:01:07,920 Speaker 1: what we talk commodities, that it's like a there is 17 00:01:07,959 --> 00:01:11,080 Speaker 1: a very high level of demand the GDP around the world, 18 00:01:11,160 --> 00:01:15,400 Speaker 1: growing very fast, particularly as economies returned to trend or 19 00:01:15,400 --> 00:01:19,600 Speaker 1: in some cases maybe even overshoot the previous trend. And 20 00:01:19,640 --> 00:01:23,440 Speaker 1: then there is also the sort of idiosyncratic factors that 21 00:01:23,480 --> 00:01:26,480 Speaker 1: pop up that are not really macro. Maybe it's related 22 00:01:26,480 --> 00:01:30,759 Speaker 1: to weather, maybe it's related to environmental changes that inhibit production. 23 00:01:30,800 --> 00:01:33,520 Speaker 1: Maybe it's sort of something else, and it's like that policy. 24 00:01:33,680 --> 00:01:37,440 Speaker 1: So it's like that combination of very tight, very strong 25 00:01:37,520 --> 00:01:40,639 Speaker 1: demand and then any ripple or any speed bump anywhere, 26 00:01:40,720 --> 00:01:44,360 Speaker 1: or any change on the supply side really gets magnified. Yeah. 27 00:01:44,400 --> 00:01:47,000 Speaker 1: So this was something that Jeff Curry at Coleman Sacks 28 00:01:47,120 --> 00:01:51,600 Speaker 1: brought up on one of our episodes last year when 29 00:01:51,600 --> 00:01:55,440 Speaker 1: we were discussing high energy prices and the commodities rally. 30 00:01:55,720 --> 00:01:59,160 Speaker 1: He I think he said that actually, what was happening 31 00:01:59,160 --> 00:02:03,400 Speaker 1: in European gas actually began with a coal shortage in China. 32 00:02:03,880 --> 00:02:06,360 Speaker 1: So there wasn't enough coal in China and they had 33 00:02:06,400 --> 00:02:09,360 Speaker 1: to find a substitute energy source, and what they found 34 00:02:09,760 --> 00:02:13,040 Speaker 1: was oil and gas, and that eventually fed through into 35 00:02:13,240 --> 00:02:17,160 Speaker 1: European prices. So I guess what I'm saying is, if 36 00:02:17,200 --> 00:02:20,400 Speaker 1: you think of China cole as ground zero for higher 37 00:02:20,480 --> 00:02:24,280 Speaker 1: energy prices that rippled throughout the world, it seems like 38 00:02:24,320 --> 00:02:28,720 Speaker 1: we should dig into that. Yes, I'm very curious what's 39 00:02:28,760 --> 00:02:31,600 Speaker 1: going on with China and energy because there's lots of 40 00:02:31,600 --> 00:02:35,240 Speaker 1: different things happening at once. There's the Olympics coming up, 41 00:02:35,280 --> 00:02:38,760 Speaker 1: there's domestic policy changes, which we've talked about quite a bit. 42 00:02:39,400 --> 00:02:43,000 Speaker 1: There's long term goals on changing the energy mix. I 43 00:02:43,040 --> 00:02:45,640 Speaker 1: don't feel like I have much insight into it other 44 00:02:45,680 --> 00:02:50,119 Speaker 1: than that is extremely important beyond China's borders. So yes, 45 00:02:50,160 --> 00:02:53,160 Speaker 1: we need to dig it further. Okay, Well, I am 46 00:02:53,160 --> 00:02:55,760 Speaker 1: pleased to say that we are going to do exactly that. 47 00:02:55,919 --> 00:02:59,240 Speaker 1: We have Alex Turnbull of fund manager based in Singapore 48 00:02:59,600 --> 00:03:01,320 Speaker 1: and some when he has done quite a bit of 49 00:03:01,360 --> 00:03:05,040 Speaker 1: research into China's coal market. So Alex, welcome to the show, 50 00:03:06,000 --> 00:03:09,600 Speaker 1: Thank you very much. So I guess my first question, 51 00:03:10,040 --> 00:03:13,680 Speaker 1: just to lay the groundwork for this discussion, one of 52 00:03:13,720 --> 00:03:18,160 Speaker 1: the unusual things about the China coal market, as I 53 00:03:18,240 --> 00:03:21,680 Speaker 1: understand it, is that China does actually have a decent 54 00:03:21,720 --> 00:03:25,320 Speaker 1: amount of coal within its borders, but it also imports 55 00:03:25,480 --> 00:03:28,400 Speaker 1: a lot of its coal supplies. So I guess my 56 00:03:28,480 --> 00:03:31,240 Speaker 1: question is why does that happen? Why do they do that? 57 00:03:31,280 --> 00:03:34,680 Speaker 1: Why not just dig up what they have already? Sure, 58 00:03:35,160 --> 00:03:39,680 Speaker 1: with any commodity which is reasonably lower dollar value per ton, 59 00:03:40,600 --> 00:03:42,520 Speaker 1: it's best to think of it as not a price 60 00:03:43,120 --> 00:03:46,200 Speaker 1: where if you want to buy ann ounce of gold 61 00:03:46,280 --> 00:03:50,280 Speaker 1: from someone it's sufficiently high value, they can mail it 62 00:03:50,320 --> 00:03:53,360 Speaker 1: to you or exported quite easily. With things that are 63 00:03:53,360 --> 00:03:57,480 Speaker 1: relatively low value, per toime, transport costs are incredibly important 64 00:03:57,560 --> 00:04:02,240 Speaker 1: and locational constraints are very important. So it's a little 65 00:04:02,240 --> 00:04:05,840 Speaker 1: bit like gas pipelines where just because someone wants to 66 00:04:05,840 --> 00:04:07,760 Speaker 1: buy gas somewhere, it doesn't mean you can actually deliver 67 00:04:07,800 --> 00:04:10,080 Speaker 1: it to them, will deliver it to them an economical price. 68 00:04:10,680 --> 00:04:14,200 Speaker 1: So with Cole, it's really these locational dynamics that make 69 00:04:14,240 --> 00:04:17,880 Speaker 1: it quite a quirky market in some respects. Just like 70 00:04:18,040 --> 00:04:21,640 Speaker 1: nine seconds into this discussion, I'm already finding that to 71 00:04:21,680 --> 00:04:24,640 Speaker 1: be like very useful. So I want to step back 72 00:04:25,000 --> 00:04:28,200 Speaker 1: and asking even zoom zoom out even further before we 73 00:04:28,240 --> 00:04:32,240 Speaker 1: get into the details. But it's in your research, like 74 00:04:32,760 --> 00:04:37,479 Speaker 1: outside of China specifically, why is this a question or 75 00:04:37,520 --> 00:04:40,120 Speaker 1: why is this a topic that interests you? And why 76 00:04:40,120 --> 00:04:44,160 Speaker 1: should say anyone outside of China care that much? Sure, so, 77 00:04:44,440 --> 00:04:50,400 Speaker 1: my background is in distressed debt historically and convertible bonds 78 00:04:51,080 --> 00:04:54,920 Speaker 1: and the call sector repeatedly blew up over the course 79 00:04:54,960 --> 00:04:58,240 Speaker 1: of the financial crisis. A few names got into trouble. 80 00:04:59,080 --> 00:05:04,599 Speaker 1: There was a large protracted downturn in sixteen, and over 81 00:05:04,640 --> 00:05:11,719 Speaker 1: that period SEV simultaneously worked on Peabody Energy, which went bankrupt, 82 00:05:12,040 --> 00:05:14,880 Speaker 1: and also Mongolian mining, which also went bankrupt around the 83 00:05:14,920 --> 00:05:19,359 Speaker 1: same time, had to be restructured. And so by seeing 84 00:05:19,920 --> 00:05:23,719 Speaker 1: how those two businesses were actually quite tightly coupled in 85 00:05:23,800 --> 00:05:28,200 Speaker 1: weird ways via the Chinese coal market and the quirks 86 00:05:28,240 --> 00:05:31,599 Speaker 1: within the Chinese coal market and regulatory actions there. At 87 00:05:31,640 --> 00:05:35,599 Speaker 1: a time, this is essentially the biggest energy market in 88 00:05:35,600 --> 00:05:39,960 Speaker 1: the world. It's almost a quarter of the world's carbon emissions, 89 00:05:40,360 --> 00:05:44,720 Speaker 1: just col and China, and it's recentably poorly covered and understood. 90 00:05:44,839 --> 00:05:49,880 Speaker 1: So and the course of tweeting about this in I 91 00:05:49,880 --> 00:05:53,240 Speaker 1: think it was mid I got a reply back from 92 00:05:53,279 --> 00:05:56,720 Speaker 1: a friend who's a professor at the Istraelia National University, 93 00:05:57,120 --> 00:05:59,239 Speaker 1: who said, what's all this about? And then we spoke 94 00:05:59,240 --> 00:06:00,560 Speaker 1: about it for an hour or so. He said, why 95 00:06:00,560 --> 00:06:03,240 Speaker 1: don't we do a paper about this? And I thought, well, 96 00:06:03,920 --> 00:06:05,479 Speaker 1: we can probably get the data, or at least we 97 00:06:05,520 --> 00:06:08,640 Speaker 1: can try, and so hence we went through this exercise 98 00:06:08,720 --> 00:06:13,640 Speaker 1: of modeling the entire Chinese logistics, power and steel market, 99 00:06:14,240 --> 00:06:18,480 Speaker 1: transport and the minds and the imports in a big simulation. 100 00:06:19,160 --> 00:06:22,880 Speaker 1: So maybe we should get into what has actually been 101 00:06:22,880 --> 00:06:25,719 Speaker 1: happening with the coal market in China. And you know, 102 00:06:25,760 --> 00:06:28,200 Speaker 1: I'm looking at a chart of prices, and there was 103 00:06:28,520 --> 00:06:31,480 Speaker 1: that spike late last year, sort of at the beginning 104 00:06:31,520 --> 00:06:34,159 Speaker 1: of the fourth quarter, I guess, and it started coming 105 00:06:34,160 --> 00:06:38,200 Speaker 1: down since then. So what exactly happened? I guess? What 106 00:06:38,320 --> 00:06:41,720 Speaker 1: was the shock to China's coal system that set that 107 00:06:41,920 --> 00:06:46,880 Speaker 1: price action in motion? This price volatility. Sure, so the 108 00:06:46,880 --> 00:06:49,040 Speaker 1: thermal cole you had a similar problem to a lot 109 00:06:49,040 --> 00:06:55,680 Speaker 1: of other commodities, and demand collapsed. There was supply continued, 110 00:06:56,320 --> 00:06:59,120 Speaker 1: and while coal did not try at negative prices like oil, 111 00:06:59,160 --> 00:07:03,000 Speaker 1: it was pretty good regiously oversupplied. At the same time, 112 00:07:03,040 --> 00:07:05,839 Speaker 1: there were weather dynamics. So in the Chinese power market, 113 00:07:06,760 --> 00:07:09,640 Speaker 1: the second biggest source of power is hydro electric power. 114 00:07:09,880 --> 00:07:11,240 Speaker 1: So if you get a lot of rain or a 115 00:07:11,280 --> 00:07:15,240 Speaker 1: very wet summer and spring in China, you then suddenly 116 00:07:15,280 --> 00:07:17,679 Speaker 1: have a lot of cheap hydro power, which then displaces cold. 117 00:07:17,760 --> 00:07:22,160 Speaker 1: So by Q four they were just about giving it away, 118 00:07:22,480 --> 00:07:25,280 Speaker 1: But then there was a cold winter and then over 119 00:07:25,320 --> 00:07:29,720 Speaker 1: the course of say March to May, one key coal 120 00:07:29,800 --> 00:07:34,400 Speaker 1: mining province massively underproduced to the tune of output was 121 00:07:34,440 --> 00:07:38,560 Speaker 1: down at the same time demand was recovering. Like in 122 00:07:38,600 --> 00:07:40,920 Speaker 1: a lot of other places in the world, you had 123 00:07:40,960 --> 00:07:43,840 Speaker 1: a real upswing in power to man and then by 124 00:07:43,920 --> 00:07:48,880 Speaker 1: September there were in this I think in Guangdong on 125 00:07:48,920 --> 00:07:51,680 Speaker 1: the data we have, they had less than six or 126 00:07:51,720 --> 00:07:56,320 Speaker 1: seven days of coal inventory to burn. So if there 127 00:07:56,360 --> 00:07:58,160 Speaker 1: was a typhoon that came through Hong Kong and the 128 00:07:58,160 --> 00:08:00,480 Speaker 1: port's got shut for a couple of days, that would 129 00:08:00,480 --> 00:08:03,160 Speaker 1: have been lights out in Guangdong, and prices of course 130 00:08:03,200 --> 00:08:06,280 Speaker 1: would flying at that point. Then the government stepped in 131 00:08:06,480 --> 00:08:08,320 Speaker 1: tell everyone to turn the minds back on it into 132 00:08:08,360 --> 00:08:12,640 Speaker 1: Mongalia and now looks quite well supplied again. But it's 133 00:08:12,640 --> 00:08:16,560 Speaker 1: been quite a roll of chinastry. I would say, in general, 134 00:08:17,240 --> 00:08:20,680 Speaker 1: what is the mix look like in terms of how 135 00:08:20,760 --> 00:08:24,560 Speaker 1: much coal it powers the Chinese economy, how much is 136 00:08:25,040 --> 00:08:28,840 Speaker 1: domestic versus imported? And then also like what is the goal, 137 00:08:28,920 --> 00:08:33,120 Speaker 1: because China aspires to like many other countries, reduced its 138 00:08:33,480 --> 00:08:36,360 Speaker 1: use of call for environmental reasons and so forth, like 139 00:08:36,640 --> 00:08:40,319 Speaker 1: what are the what are the ambitions? So China is 140 00:08:40,320 --> 00:08:43,920 Speaker 1: the world's biggest call consumer, by quite a large margin, 141 00:08:44,880 --> 00:08:47,360 Speaker 1: consumes about three and a half billion tons per year 142 00:08:47,840 --> 00:08:51,400 Speaker 1: a thermal call to billion tons goes into power, the 143 00:08:51,440 --> 00:08:54,360 Speaker 1: rest goes into a bunch of industries cement and so forth. 144 00:08:54,880 --> 00:08:57,800 Speaker 1: And I am poor in general for thermal hell some 145 00:08:57,920 --> 00:09:00,679 Speaker 1: o between two d and three hundred tons of year, 146 00:09:01,160 --> 00:09:03,360 Speaker 1: but that can be quite volatile, and most of that 147 00:09:03,559 --> 00:09:09,200 Speaker 1: is important into southern provinces like Wigan, Guandong, and Guanti, 148 00:09:09,840 --> 00:09:11,680 Speaker 1: which don't have their own coal mines, and which are 149 00:09:11,679 --> 00:09:14,760 Speaker 1: actually quite a long way from where China's coal mines 150 00:09:14,800 --> 00:09:17,720 Speaker 1: are in the interior of the country in Shashi and 151 00:09:17,720 --> 00:09:22,440 Speaker 1: in the Mongolia, and so China's currently trying to a 152 00:09:22,440 --> 00:09:26,520 Speaker 1: achieve two major objectives. One is to have a stable 153 00:09:26,640 --> 00:09:30,160 Speaker 1: energy supply and some semblance of order, but then its 154 00:09:30,160 --> 00:09:34,040 Speaker 1: power market, which is entirely understandable, and also reduce its 155 00:09:34,080 --> 00:09:37,959 Speaker 1: carbon emissions, which is also very understandable. But the question 156 00:09:38,080 --> 00:09:43,040 Speaker 1: is given most of its coal actually goes into either 157 00:09:43,120 --> 00:09:46,800 Speaker 1: directly or indirectly into the written do heavy industry, which 158 00:09:46,840 --> 00:09:50,199 Speaker 1: is very heavily driven by real estate demand. Can they 159 00:09:50,360 --> 00:09:53,000 Speaker 1: manage a real estate slow down or a change in 160 00:09:53,040 --> 00:09:57,360 Speaker 1: growth model? So, if you think about it, their carbon objectives, 161 00:09:57,840 --> 00:10:02,560 Speaker 1: the energy security objectives, and their financial rebalance and objectives 162 00:10:02,559 --> 00:10:06,240 Speaker 1: are all these incredibly tightly coupled systems, and that they're 163 00:10:06,280 --> 00:10:08,120 Speaker 1: kind of the same system in many regards when you 164 00:10:08,160 --> 00:10:12,160 Speaker 1: do the carbon account. That's really interesting. So one thing 165 00:10:12,200 --> 00:10:14,440 Speaker 1: I was wondering just on the policy front. So we 166 00:10:14,520 --> 00:10:17,520 Speaker 1: did see China shut down quite a few minds, and 167 00:10:17,559 --> 00:10:22,560 Speaker 1: specifically the older, dirtier minds. I guess how easy are 168 00:10:22,600 --> 00:10:27,400 Speaker 1: those to turn back on or how flexible is new 169 00:10:27,480 --> 00:10:32,960 Speaker 1: supply in terms of bringing additional capacity on stream. So 170 00:10:33,120 --> 00:10:35,320 Speaker 1: what when they initially had a big clean out of 171 00:10:35,320 --> 00:10:38,920 Speaker 1: the sector in sixteen, they did shut down a lot 172 00:10:38,960 --> 00:10:42,240 Speaker 1: of smaller private miners which had a reputation for not 173 00:10:42,320 --> 00:10:45,800 Speaker 1: being very compliant with safety standards, are being well capitalized. 174 00:10:46,480 --> 00:10:50,000 Speaker 1: Then coal price has got a bit high in eighteen nineteen, 175 00:10:50,080 --> 00:10:53,200 Speaker 1: then increased their capex for coal mining, and they told 176 00:10:53,280 --> 00:10:57,480 Speaker 1: the largest players to build bigger, more efficient, more mechanized minds. 177 00:10:57,960 --> 00:11:01,120 Speaker 1: And so when things slowed down in Q two of 178 00:11:01,240 --> 00:11:06,040 Speaker 1: twenty one, that happened quite abruptly. I was quite surprised 179 00:11:06,040 --> 00:11:08,719 Speaker 1: to market participants. No one could really explain why it 180 00:11:08,800 --> 00:11:11,800 Speaker 1: was happening as demand was going up. So it subsequently 181 00:11:11,800 --> 00:11:14,280 Speaker 1: emerged later, but then it was actually very easy to 182 00:11:14,360 --> 00:11:17,480 Speaker 1: turnental back on because they were very centralized set in enterprises. 183 00:11:18,080 --> 00:11:20,640 Speaker 1: So as soon as I put the memo out for 184 00:11:20,679 --> 00:11:24,000 Speaker 1: everyone to my law, get that on trains and get 185 00:11:24,040 --> 00:11:28,160 Speaker 1: it out, you saw daily call output explode. It actually 186 00:11:28,160 --> 00:11:30,480 Speaker 1: had quite a lot of control when pushed hand to 187 00:11:30,520 --> 00:11:49,800 Speaker 1: shop on that market. I'm saying, can you go back 188 00:11:50,000 --> 00:11:52,800 Speaker 1: and maybe talk a little bit further about the way 189 00:11:53,120 --> 00:11:56,520 Speaker 1: these various policy priorities dovetail with each other, And we 190 00:11:56,559 --> 00:11:59,240 Speaker 1: actually just did an episode on the real estate sector 191 00:11:59,480 --> 00:12:02,920 Speaker 1: and the attempt to transition some of the quality of 192 00:12:03,360 --> 00:12:07,600 Speaker 1: GDP growth in China away from real estate speculation and 193 00:12:07,720 --> 00:12:11,719 Speaker 1: real estate development, and then the broader decarbonization. Can you 194 00:12:11,800 --> 00:12:14,560 Speaker 1: talk a little bit about further about the common thread 195 00:12:14,559 --> 00:12:17,079 Speaker 1: there and how coal itself sort of fits into all 196 00:12:17,080 --> 00:12:22,280 Speaker 1: of it. So most of China's energy demand, at least 197 00:12:22,360 --> 00:12:28,599 Speaker 1: electrical power demand, actually comes from heavy industry, and the 198 00:12:28,600 --> 00:12:33,480 Speaker 1: biggest heavy industries are in order appairance ferrost metals, which 199 00:12:33,559 --> 00:12:37,000 Speaker 1: is basically steel, nonferrest metal, so things like copper and 200 00:12:37,120 --> 00:12:40,520 Speaker 1: zinc and tum and then kind of chemicals and the 201 00:12:40,640 --> 00:12:43,960 Speaker 1: cident when you do the flow of materials, so you 202 00:12:44,000 --> 00:12:47,199 Speaker 1: track where does all the steel go, actually very heavily 203 00:12:47,200 --> 00:12:50,640 Speaker 1: goes into construction. Where the emissions from steel come from. 204 00:12:50,640 --> 00:12:54,600 Speaker 1: It's all electrical power and cold for I'm smelting steel. 205 00:12:55,040 --> 00:12:58,840 Speaker 1: You see that. Essentially, the Chinese real estate sector accounts 206 00:12:58,840 --> 00:13:04,080 Speaker 1: for in the order of China's total emissions depends on 207 00:13:04,120 --> 00:13:07,400 Speaker 1: whose account and you're looking at, but it's it's enormous 208 00:13:07,480 --> 00:13:11,160 Speaker 1: so and then heavy industry and that's just residential and 209 00:13:11,160 --> 00:13:13,480 Speaker 1: that's commercial in the rest of it, and so heavy 210 00:13:13,480 --> 00:13:17,079 Speaker 1: industry accounts for sixty seven seven I think at the 211 00:13:17,160 --> 00:13:22,199 Speaker 1: last stata of China's powder man so and then Chinese 212 00:13:22,240 --> 00:13:26,720 Speaker 1: domestic construction in general is what drives China's emissions more 213 00:13:26,800 --> 00:13:30,000 Speaker 1: than anything else. Essentially, if you are if you want 214 00:13:30,040 --> 00:13:34,760 Speaker 1: to reduce your carbon emissions and improve your energy security 215 00:13:34,760 --> 00:13:39,120 Speaker 1: by importing less coal, you can build those apartments. You 216 00:13:39,160 --> 00:13:41,679 Speaker 1: can build a lot of renewables to replace the coal, 217 00:13:42,280 --> 00:13:45,199 Speaker 1: or a bit of both. But these things that these 218 00:13:45,240 --> 00:13:49,120 Speaker 1: two functions are very tightly integrated. You know. It's always 219 00:13:49,120 --> 00:13:52,360 Speaker 1: been an observation when people do modeling that if China 220 00:13:52,400 --> 00:13:55,760 Speaker 1: were to get through at construction rate more in line 221 00:13:55,800 --> 00:13:58,880 Speaker 1: with level lawns. It would be very easy for China 222 00:13:58,960 --> 00:14:02,880 Speaker 1: to achieve quiet remarkable carbon targets, but it's proven very 223 00:14:02,920 --> 00:14:06,760 Speaker 1: hard for China to change its growth model and move 224 00:14:06,840 --> 00:14:10,960 Speaker 1: from a essentially a construction paradigm in real estate and 225 00:14:11,000 --> 00:14:15,559 Speaker 1: certainly residential real estate. So I mean, assuming that China 226 00:14:15,720 --> 00:14:19,040 Speaker 1: is at some point able to make some progress in 227 00:14:19,160 --> 00:14:21,560 Speaker 1: changing the mix of its growth, and we do see 228 00:14:21,560 --> 00:14:24,360 Speaker 1: house prices start to come down what we've already seen, 229 00:14:24,520 --> 00:14:27,400 Speaker 1: Chinese house prices start to come down, and maybe housing 230 00:14:27,400 --> 00:14:29,920 Speaker 1: inventory starts to be cut and we don't get as 231 00:14:30,000 --> 00:14:33,720 Speaker 1: much construction of new homes. Assuming all of that happens, 232 00:14:34,480 --> 00:14:38,040 Speaker 1: what happens in the energy space in terms of funding 233 00:14:38,280 --> 00:14:41,200 Speaker 1: and capital. Is capital going to be an issue for 234 00:14:41,280 --> 00:14:44,200 Speaker 1: Chinese energy or does all of that come from the state. 235 00:14:46,080 --> 00:14:49,880 Speaker 1: It's it's very heavily state timed, so they essentially have 236 00:14:49,960 --> 00:14:53,400 Speaker 1: access to if government policy is that they are to 237 00:14:53,480 --> 00:14:55,880 Speaker 1: build some things and there will be capital available for 238 00:14:55,880 --> 00:14:58,360 Speaker 1: them to build certain things, is the best way to 239 00:14:58,400 --> 00:15:00,960 Speaker 1: think about it. It's not like in the house signs 240 00:15:01,000 --> 00:15:03,440 Speaker 1: off on every single lot among the capex flans, But 241 00:15:03,720 --> 00:15:07,520 Speaker 1: is unit see a vision. Let's go back to like 242 00:15:07,680 --> 00:15:12,880 Speaker 1: the the effect outside of China's borders and the other things. 243 00:15:12,960 --> 00:15:14,760 Speaker 1: You know, we've seen these sort of knock on effects. 244 00:15:14,760 --> 00:15:19,240 Speaker 1: We've seen surging energy prices in Europe. It's been a 245 00:15:19,360 --> 00:15:23,840 Speaker 1: very stressful winter, massive surgeon electricity bills. Not only does 246 00:15:23,880 --> 00:15:26,200 Speaker 1: that hit the household sector there, it's also hit some 247 00:15:26,240 --> 00:15:31,080 Speaker 1: industrial sectors. Fertilizer companies shutting down or temporarily because it 248 00:15:31,200 --> 00:15:33,760 Speaker 1: just doesn't make sense. They can't be running economically at 249 00:15:33,760 --> 00:15:37,640 Speaker 1: these levels. We started this discussion talking about the ripple effects, 250 00:15:37,720 --> 00:15:41,520 Speaker 1: and so what are the ripple effects from China and 251 00:15:41,560 --> 00:15:44,240 Speaker 1: how do they relate to what we're seeing elsewhere in 252 00:15:44,240 --> 00:15:47,920 Speaker 1: the world. Sure, so that the challenge for China is 253 00:15:47,960 --> 00:15:51,040 Speaker 1: that if China has a shortage and energy, a province 254 00:15:51,080 --> 00:15:55,800 Speaker 1: in in a Mongolia has an anti corruption campaign, mond 255 00:15:55,840 --> 00:15:59,120 Speaker 1: in protles done happen with some hauled up in production. 256 00:15:59,800 --> 00:16:02,440 Speaker 1: The problem is is that if China needs to import 257 00:16:02,520 --> 00:16:04,960 Speaker 1: a large amount of cold very quickly at short notice, 258 00:16:05,640 --> 00:16:09,640 Speaker 1: it's very hard for China now too source that kind 259 00:16:09,680 --> 00:16:13,760 Speaker 1: of volume of coal that it needs in the international market. 260 00:16:13,800 --> 00:16:18,040 Speaker 1: The reason it is that China consumes three billion tons 261 00:16:18,080 --> 00:16:23,880 Speaker 1: a year, so the thermal between ower, cement and heating 262 00:16:24,400 --> 00:16:27,840 Speaker 1: and then the US consumed six over there, so it's 263 00:16:27,840 --> 00:16:31,920 Speaker 1: like five times the size of the United States and 264 00:16:32,200 --> 00:16:35,080 Speaker 1: about the Indias about the same the slightly smaller than 265 00:16:35,080 --> 00:16:40,640 Speaker 1: the US. So it's sort of swamps any viable supply 266 00:16:40,840 --> 00:16:43,080 Speaker 1: that might get from elsewhere if they had a significant 267 00:16:43,120 --> 00:16:45,600 Speaker 1: shortage in China. And so then where you saw in 268 00:16:45,680 --> 00:16:48,920 Speaker 1: China was that as coal prices rose, they were switching 269 00:16:49,120 --> 00:16:53,320 Speaker 1: from cola burning coal to get electricity to gas. So 270 00:16:53,480 --> 00:16:55,480 Speaker 1: someone the China started buying a lot of cargoes of 271 00:16:55,640 --> 00:16:57,880 Speaker 1: lergy and you saw that in the shipping down to 272 00:16:57,960 --> 00:17:01,040 Speaker 1: just exploit over the summer and over said from my onboards, 273 00:17:01,040 --> 00:17:04,040 Speaker 1: when the when the when the eventure started to get 274 00:17:04,080 --> 00:17:06,399 Speaker 1: low and so, and that of course taught in the 275 00:17:06,400 --> 00:17:10,200 Speaker 1: gas markets at a time when Europe is normally building 276 00:17:10,240 --> 00:17:14,960 Speaker 1: inventories into winter, and led to partners one of the 277 00:17:15,000 --> 00:17:19,560 Speaker 1: contributing factors to very tight gas markets over this winter. 278 00:17:20,640 --> 00:17:23,879 Speaker 1: So the problem is China is essentially it's like having 279 00:17:23,880 --> 00:17:27,440 Speaker 1: an adult on a trampline with small children. It just 280 00:17:27,800 --> 00:17:30,840 Speaker 1: is so bit now it can kind of launch other 281 00:17:30,880 --> 00:17:36,040 Speaker 1: markets without even trying to. So what happens when China 282 00:17:36,080 --> 00:17:41,360 Speaker 1: actually builds out its energy independence or security because this 283 00:17:41,480 --> 00:17:44,960 Speaker 1: is something that we've seen explicitly as a policy goal. 284 00:17:45,400 --> 00:17:48,880 Speaker 1: They want to reduce imports, they want to rely more 285 00:17:48,960 --> 00:17:52,639 Speaker 1: on mining within their borders. What happens to that ripple 286 00:17:52,640 --> 00:17:57,000 Speaker 1: effect if they manage to succeed in doing that, does 287 00:17:57,080 --> 00:18:00,639 Speaker 1: that ripple effects start to come down or is it 288 00:18:00,800 --> 00:18:04,879 Speaker 1: just so big that it's really difficult to reduce it. 289 00:18:06,640 --> 00:18:09,879 Speaker 1: I think the challenge with coal is the China burns 290 00:18:09,920 --> 00:18:12,440 Speaker 1: about six million tons a day, six and a half 291 00:18:12,480 --> 00:18:15,200 Speaker 1: million tons of day during winter. Coal has got about 292 00:18:15,240 --> 00:18:17,320 Speaker 1: the same density is water, So you know I would 293 00:18:17,400 --> 00:18:20,440 Speaker 1: give it met out. The water is a ton, and 294 00:18:20,520 --> 00:18:24,000 Speaker 1: so you think of what that means and ship volumes 295 00:18:24,400 --> 00:18:27,560 Speaker 1: if you want to store that much coal. You know, 296 00:18:27,800 --> 00:18:30,879 Speaker 1: you can literally see this from space quite happily, and 297 00:18:31,320 --> 00:18:35,160 Speaker 1: many commodity traders do. And so the problem is that 298 00:18:35,720 --> 00:18:40,440 Speaker 1: China is now trying to enforce inventory levels on coal 299 00:18:40,560 --> 00:18:43,480 Speaker 1: mines and power plants. And that can work up to 300 00:18:43,480 --> 00:18:48,320 Speaker 1: a certain point, but realistically it will have to either 301 00:18:48,480 --> 00:18:53,160 Speaker 1: gradually become slightly less energy intensively significant less energy intensive 302 00:18:53,200 --> 00:18:56,520 Speaker 1: through changing growth model. All have to move to sources 303 00:18:56,520 --> 00:18:59,439 Speaker 1: of power which where it's a bit easy to manage, 304 00:18:59,520 --> 00:19:03,000 Speaker 1: or lot of energy that's build a lot more renwobles 305 00:19:03,040 --> 00:19:06,800 Speaker 1: and having a lot more hotter power and hot re storage, 306 00:19:06,880 --> 00:19:10,280 Speaker 1: or a lot of nuclear. And from the latest energy plan, 307 00:19:11,119 --> 00:19:12,920 Speaker 1: it looks like that people in a lot of nuclear 308 00:19:12,960 --> 00:19:15,560 Speaker 1: and that will be actually in those coastal provinces which 309 00:19:15,560 --> 00:19:23,120 Speaker 1: have been you know, international coal imported provinces um bigen gloxy. 310 00:19:23,720 --> 00:19:26,720 Speaker 1: So I think over time they will they will essentially 311 00:19:26,800 --> 00:19:30,480 Speaker 1: easit call market, so that is certainly their intent and 312 00:19:30,600 --> 00:19:33,680 Speaker 1: become more self sufficient. But I don't think it's I 313 00:19:33,720 --> 00:19:36,920 Speaker 1: think trying to manage these inventories they're trying to say 314 00:19:37,000 --> 00:19:40,440 Speaker 1: very heavily fossil arranted when they accidentally consuming this much 315 00:19:41,200 --> 00:19:44,560 Speaker 1: is very challenging. You know. I'm thinking one of the 316 00:19:44,640 --> 00:19:48,479 Speaker 1: storylines out of Europe and again were trying need to 317 00:19:48,560 --> 00:19:50,800 Speaker 1: talk about it more, especially because it has long term 318 00:19:51,160 --> 00:19:55,239 Speaker 1: ramifications for the energy transition, is like there's perception that 319 00:19:55,840 --> 00:20:01,600 Speaker 1: Europe has tried to transition to renewable maybe too fast. 320 00:20:02,280 --> 00:20:04,960 Speaker 1: In the case of Germany is still shutting down nuclear, 321 00:20:05,240 --> 00:20:09,480 Speaker 1: not maintaining like a robust baseload even as it transitions. 322 00:20:09,920 --> 00:20:12,840 Speaker 1: Does China's attempt to transition long term off call and 323 00:20:12,880 --> 00:20:15,840 Speaker 1: you mentioned that it's going to be investing more in nuclear. 324 00:20:17,000 --> 00:20:21,679 Speaker 1: Is that going to allow it to like achieve those goals, 325 00:20:21,720 --> 00:20:25,879 Speaker 1: to achieve the decarbonization goals while also not running into 326 00:20:26,160 --> 00:20:30,199 Speaker 1: short term volatility, not running into a mismatch. And is 327 00:20:30,320 --> 00:20:36,040 Speaker 1: nuclear an important part of making a transition sustainable? I 328 00:20:36,040 --> 00:20:38,840 Speaker 1: think you can. It's very important for those southern provinces 329 00:20:38,840 --> 00:20:43,760 Speaker 1: where you don't have great solid resources or that particularly 330 00:20:43,800 --> 00:20:48,360 Speaker 1: good win resources, so you're out too on that account 331 00:20:48,960 --> 00:20:52,080 Speaker 1: limited toro and you want to reduce your calling bots 332 00:20:52,280 --> 00:20:55,639 Speaker 1: is not really a process of elimination. That's that's probably 333 00:20:55,720 --> 00:20:57,880 Speaker 1: the way they'll go, and that's certainly what's coming out 334 00:20:57,880 --> 00:21:01,600 Speaker 1: of their energy plants. I think you're there's a it's 335 00:21:01,600 --> 00:21:04,359 Speaker 1: certain what the problem with the power price piration is 336 00:21:04,400 --> 00:21:08,920 Speaker 1: not day to day, it's this seasonal storage. So it's 337 00:21:08,920 --> 00:21:11,480 Speaker 1: how do you store up the energy you need for 338 00:21:11,600 --> 00:21:14,480 Speaker 1: winter in the in summer, And normally you do that 339 00:21:15,080 --> 00:21:19,960 Speaker 1: through hydro power or through just storyline running your gas 340 00:21:20,000 --> 00:21:24,840 Speaker 1: storadopting ninety percent and then running it down as they 341 00:21:24,880 --> 00:21:27,640 Speaker 1: do normally in Europe around February and March. But if 342 00:21:27,680 --> 00:21:30,120 Speaker 1: you have trying to lift in all the spot eldry 343 00:21:30,160 --> 00:21:33,919 Speaker 1: cargoes for their own reasons, and then Vladomia Putin has 344 00:21:33,960 --> 00:21:37,920 Speaker 1: other plans, then that kind of runs into trouble. So 345 00:21:37,960 --> 00:21:40,800 Speaker 1: it's not the variability of renewables tends to be like 346 00:21:40,880 --> 00:21:42,280 Speaker 1: you're not sure that it's going to be on or 347 00:21:42,359 --> 00:21:46,040 Speaker 1: off an you've given one hour period, but over the 348 00:21:46,040 --> 00:21:50,080 Speaker 1: possible week, it's reasonably predictable, especially if it's a blind 349 00:21:50,119 --> 00:21:53,119 Speaker 1: of solid and went. But where you can't really hedge 350 00:21:53,160 --> 00:21:55,280 Speaker 1: is how do you how do you build up massive 351 00:21:55,359 --> 00:21:58,520 Speaker 1: storage over the summer and then keep it for winds 352 00:21:58,640 --> 00:22:02,040 Speaker 1: like a squirrel? Basically, So can I ask a really 353 00:22:02,080 --> 00:22:05,880 Speaker 1: basic question on the renewable energy front, which is there 354 00:22:05,960 --> 00:22:09,840 Speaker 1: was always suspicion about how serious China actually is when 355 00:22:09,880 --> 00:22:14,159 Speaker 1: it comes to decarbonization, as in, is it actually going 356 00:22:14,200 --> 00:22:16,720 Speaker 1: to meet the quite lofty goals that it's set out 357 00:22:16,760 --> 00:22:19,879 Speaker 1: for itself. And so I guess my question is one 358 00:22:20,240 --> 00:22:23,720 Speaker 1: how serious are they on the green energy front and 359 00:22:23,880 --> 00:22:29,159 Speaker 1: decarbonization and to why decarbonization at all? Why is it 360 00:22:29,200 --> 00:22:32,240 Speaker 1: important to them? Is it genuinely a climate concern or 361 00:22:32,320 --> 00:22:36,000 Speaker 1: is it more about efficiency and building out that self 362 00:22:36,000 --> 00:22:40,240 Speaker 1: sufficiency When it comes to energy security, well, I think 363 00:22:40,400 --> 00:22:47,240 Speaker 1: historically the power regulations until quite recently do not We're 364 00:22:47,280 --> 00:22:50,520 Speaker 1: not particularly come here, and I would cite the incentives. 365 00:22:50,560 --> 00:22:54,040 Speaker 1: Do you tell these to take renewable power? Like in 366 00:22:54,119 --> 00:22:58,240 Speaker 1: twenty sixty that the level of curtailment essentially when farms 367 00:22:58,240 --> 00:23:00,119 Speaker 1: have produced power and not be able to sell the 368 00:23:00,400 --> 00:23:03,000 Speaker 1: market was very high and there are a lot of 369 00:23:03,119 --> 00:23:06,480 Speaker 1: market design issues. I think what they've done recently is 370 00:23:06,480 --> 00:23:08,160 Speaker 1: they fixed a lot some of a lot of these issues. 371 00:23:08,200 --> 00:23:11,239 Speaker 1: There are there are still some, but more importantly, they 372 00:23:11,280 --> 00:23:14,959 Speaker 1: seem to have been looking to fix coal prices significantly higher, 373 00:23:15,040 --> 00:23:18,520 Speaker 1: so that renewables it can be very competitive, you know, 374 00:23:18,560 --> 00:23:21,480 Speaker 1: without any subsidies whatsoever, and will be actually the preferred 375 00:23:21,520 --> 00:23:24,640 Speaker 1: source of power dispatch. So I think the next couple 376 00:23:24,680 --> 00:23:27,640 Speaker 1: of years are going to be will quiet will surprise 377 00:23:27,720 --> 00:23:30,040 Speaker 1: people how much they will built in terms of renewables, 378 00:23:30,400 --> 00:23:34,320 Speaker 1: because the market incentive is now very strong. Um, if 379 00:23:34,359 --> 00:23:38,320 Speaker 1: you think simplistically, if there seems to be fixing coal 380 00:23:38,440 --> 00:23:41,479 Speaker 1: contracts around seven hundred remitives, so it's under the ten 381 00:23:41,520 --> 00:23:44,639 Speaker 1: U s dollars plus minus, there's about the third of 382 00:23:44,680 --> 00:23:47,600 Speaker 1: a ton of coal that goes to make a you know, 383 00:23:47,640 --> 00:23:50,879 Speaker 1: maybe what are a power There are lots and lots 384 00:23:51,000 --> 00:23:55,159 Speaker 1: of renewable projects which will make money world below thirty 385 00:23:55,200 --> 00:23:58,200 Speaker 1: dollars in China, and that will that's see ess secual. 386 00:23:58,200 --> 00:24:00,240 Speaker 1: If you're a coal plan, you can't uncover with fuel 387 00:24:00,320 --> 00:24:02,840 Speaker 1: costs for that kind of competition. So I think they 388 00:24:02,880 --> 00:24:06,640 Speaker 1: have started to get the market design right in all fairness. 389 00:24:07,280 --> 00:24:10,919 Speaker 1: In terms of their motivations, I think a lot of 390 00:24:10,960 --> 00:24:16,080 Speaker 1: this is driven by guessing more tough look on their 391 00:24:16,960 --> 00:24:22,600 Speaker 1: foreign policy and security environment, and there are realistic considerations 392 00:24:22,680 --> 00:24:26,440 Speaker 1: that if you need to import a couple hundred million 393 00:24:26,480 --> 00:24:30,080 Speaker 1: tons of your coastal provinces and you can't building vatteries 394 00:24:30,119 --> 00:24:33,840 Speaker 1: more than thirty days there, and you have a marine 395 00:24:33,880 --> 00:24:37,280 Speaker 1: conflict in your local neighborhood and you can't get a 396 00:24:37,280 --> 00:24:40,280 Speaker 1: merchant marine through, then your power grid goes down in 397 00:24:40,359 --> 00:24:43,600 Speaker 1: less than a month. That's obviously something they can't really 398 00:24:43,640 --> 00:24:46,000 Speaker 1: tolerate given some of their ambitions in the region. So 399 00:24:46,800 --> 00:24:49,600 Speaker 1: I think there is a strong security angle too, some 400 00:24:49,680 --> 00:24:55,399 Speaker 1: of their new religion around decompanization. So who loses big 401 00:24:55,440 --> 00:25:01,240 Speaker 1: picture as the decourbanization effort continue and make serious progress 402 00:25:01,280 --> 00:25:06,880 Speaker 1: and greater production of renewables and or nuclear domestically, who 403 00:25:07,040 --> 00:25:11,639 Speaker 1: ultimately loses out from their ship. Sure, I mean right now, 404 00:25:11,680 --> 00:25:15,080 Speaker 1: there's part of the reason the coal markets so strong 405 00:25:15,280 --> 00:25:18,159 Speaker 1: is to do a lot of supply interruptions in Indonesia 406 00:25:19,320 --> 00:25:21,520 Speaker 1: and China also had to buy a lot of coal 407 00:25:22,000 --> 00:25:25,160 Speaker 1: influence very quickly at the end of last year. Longer term, 408 00:25:25,400 --> 00:25:28,600 Speaker 1: it's very bad for the major coal explorers which are 409 00:25:28,720 --> 00:25:33,000 Speaker 1: to China, which are Indonesia, principally Australia, which does not 410 00:25:33,119 --> 00:25:36,320 Speaker 1: as China has banned from exporting coal to them due 411 00:25:36,359 --> 00:25:39,840 Speaker 1: to diplomatic fracas and so forth. There will be major 412 00:25:39,920 --> 00:25:44,719 Speaker 1: loses from the shrunken thermal coal market. It's simpl and shipping. 413 00:25:45,280 --> 00:25:47,480 Speaker 1: But for met coal, which goes into steel, which is 414 00:25:47,760 --> 00:25:49,920 Speaker 1: a different sort of thing, it's really will be the 415 00:25:49,960 --> 00:25:52,239 Speaker 1: big loser there. But also Russia in the US, and 416 00:25:52,800 --> 00:25:54,960 Speaker 1: I mean the only reason the met coal market is 417 00:25:55,080 --> 00:25:58,119 Speaker 1: very strong right now is because China's buying most of 418 00:25:58,160 --> 00:26:01,680 Speaker 1: its met cold from Mongolia in Antane. But due to 419 00:26:02,840 --> 00:26:06,440 Speaker 1: closing the border to to COVID Piven and substantially closed, 420 00:26:06,920 --> 00:26:10,440 Speaker 1: that's led to this explosion of call exports from Russia 421 00:26:10,560 --> 00:26:14,560 Speaker 1: and Canada and the US to China to replace the 422 00:26:14,600 --> 00:26:17,920 Speaker 1: fact that they kicked out Australia the close the border 423 00:26:17,920 --> 00:26:20,080 Speaker 1: with Mongola, and they happened to buy a very expensive 424 00:26:20,119 --> 00:26:23,399 Speaker 1: call from a very long way. Why now, you mentioned 425 00:26:23,440 --> 00:26:27,840 Speaker 1: incentives and the idea that energy producers are very much 426 00:26:27,920 --> 00:26:31,600 Speaker 1: incentivized to shift to renewables in the current market. But 427 00:26:31,680 --> 00:26:34,080 Speaker 1: one thing we saw last year when coal prices were 428 00:26:34,080 --> 00:26:38,560 Speaker 1: actually spiking was China liberalized its market, and I think 429 00:26:38,560 --> 00:26:40,919 Speaker 1: it said it would allow prices to rise something like 430 00:26:41,800 --> 00:26:46,080 Speaker 1: in order to incentivize more power production, and I think 431 00:26:46,119 --> 00:26:49,920 Speaker 1: it was something like ten before. So I'm wondering how 432 00:26:49,960 --> 00:26:54,080 Speaker 1: significant is that shift. Is that a permanent liberalization of 433 00:26:54,119 --> 00:26:58,000 Speaker 1: the market in order to encourage more energy production or 434 00:26:58,080 --> 00:27:00,920 Speaker 1: is it more of a one time thing to try 435 00:27:01,040 --> 00:27:05,919 Speaker 1: to balance out the market immediately. Well, what happened was 436 00:27:05,920 --> 00:27:08,240 Speaker 1: in September that the coal price got so high. I 437 00:27:08,280 --> 00:27:11,000 Speaker 1: think if at one point got to the futures and 438 00:27:11,080 --> 00:27:13,520 Speaker 1: Juno got to like two thousand women be a time. 439 00:27:13,680 --> 00:27:18,359 Speaker 1: Plus the power plants, which were obliged to produce but 440 00:27:18,480 --> 00:27:20,840 Speaker 1: could not get prices above a certain level and cover 441 00:27:20,840 --> 00:27:23,399 Speaker 1: their fuel costs just said it was I need to 442 00:27:23,440 --> 00:27:26,680 Speaker 1: do some plan maintenance or oh no, someone turned off 443 00:27:26,680 --> 00:27:29,440 Speaker 1: the machines, and so you have these rolling blackouts because 444 00:27:29,440 --> 00:27:33,640 Speaker 1: there until these were just electing to not produce at 445 00:27:33,600 --> 00:27:36,199 Speaker 1: the loss. And so they've made all these adjustments to 446 00:27:36,440 --> 00:27:40,080 Speaker 1: maximum coal price and then fuel costs passed through to 447 00:27:40,240 --> 00:27:42,600 Speaker 1: enable the market to kind of functioning it and that 448 00:27:42,680 --> 00:27:45,320 Speaker 1: seems to be working okay for now. It's there's a 449 00:27:45,359 --> 00:27:48,000 Speaker 1: reasonably why band. So it's funny to saturday the side 450 00:27:48,040 --> 00:27:53,000 Speaker 1: and under normal circumstances that should be automatical to ensure 451 00:27:53,040 --> 00:27:56,240 Speaker 1: that people are risen price signals. But yeah, there was 452 00:27:56,480 --> 00:28:18,720 Speaker 1: just absolutely patterns attempted to October. I mentioned this at 453 00:28:18,760 --> 00:28:21,200 Speaker 1: the beginning of just out of curiosity, has the really 454 00:28:21,320 --> 00:28:25,720 Speaker 1: has is short term policy been affected by the upcoming Olympics. 455 00:28:25,880 --> 00:28:28,240 Speaker 1: I know there's always talk about you know, blue skies 456 00:28:28,400 --> 00:28:31,160 Speaker 1: or the goal of having a good air air quality 457 00:28:31,200 --> 00:28:35,720 Speaker 1: ahead of big events. Is that affecting current market conditions 458 00:28:35,760 --> 00:28:38,920 Speaker 1: at all? So there's two ways to night steel. One 459 00:28:39,080 --> 00:28:42,040 Speaker 1: is with a blast fus we use a lot of 460 00:28:42,120 --> 00:28:45,160 Speaker 1: cooking call and and firm and use the more called 461 00:28:45,200 --> 00:28:48,280 Speaker 1: the beat and the otherwise an electrical funence. We you 462 00:28:48,360 --> 00:28:52,640 Speaker 1: just use cooking call and electricit. Electrical fences are generally smaller, 463 00:28:53,000 --> 00:28:56,960 Speaker 1: noisy ends, night less emissions and so for example, the 464 00:28:57,040 --> 00:29:00,360 Speaker 1: floor the Olympics. Let me telling everyone to stop stuck 465 00:29:00,440 --> 00:29:04,400 Speaker 1: up their thermal calls. They can produce electric power around 466 00:29:04,440 --> 00:29:09,000 Speaker 1: the electric car bonuses and absolutely everyone to take maintenance, 467 00:29:09,040 --> 00:29:13,160 Speaker 1: stays off, not use glass, oxygen furnuss to get to 468 00:29:13,480 --> 00:29:15,520 Speaker 1: have blue skies and so forth. I think there's going 469 00:29:15,600 --> 00:29:20,480 Speaker 1: to be extended time off the factories around which is 470 00:29:20,760 --> 00:29:24,920 Speaker 1: the problems that surrounds Beijing, to ensure that they have 471 00:29:25,080 --> 00:29:29,120 Speaker 1: the desired scenery and background. It's not not the first 472 00:29:29,160 --> 00:29:31,239 Speaker 1: time they've done I saw them do them two night, 473 00:29:31,360 --> 00:29:33,680 Speaker 1: that they'll do it again this time. It's it's it's 474 00:29:33,720 --> 00:29:38,440 Speaker 1: somewhat principal. So we started this conversation talking about the 475 00:29:38,480 --> 00:29:41,240 Speaker 1: supply chain of energy and the idea that one disruption 476 00:29:41,280 --> 00:29:44,040 Speaker 1: in China can have a knock on effect to European prices. 477 00:29:44,840 --> 00:29:48,320 Speaker 1: So I'm wondering, we've already seen Chinese or we've already 478 00:29:48,360 --> 00:29:51,800 Speaker 1: seen prices for China coles start to come down. And 479 00:29:51,880 --> 00:29:55,800 Speaker 1: you talk about some projects to build up capacity, specifically 480 00:29:55,920 --> 00:29:58,760 Speaker 1: that Big Mind in Mongolia and a lot of of 481 00:29:58,920 --> 00:30:02,760 Speaker 1: the renewable project. At what point does capacity get built 482 00:30:02,840 --> 00:30:06,880 Speaker 1: out enough that it starts to ripple back through the 483 00:30:06,960 --> 00:30:12,080 Speaker 1: europe Pan market and prices start to come down there. Well, 484 00:30:12,160 --> 00:30:14,239 Speaker 1: it's it's interesting. I mean just recently, and I think 485 00:30:14,280 --> 00:30:17,479 Speaker 1: we're speaking towards the end of January middle light January, 486 00:30:17,800 --> 00:30:19,920 Speaker 1: China's already turned around and said they will start selling 487 00:30:20,120 --> 00:30:24,640 Speaker 1: ellen cargo's back into the market, and that's already taking 488 00:30:24,720 --> 00:30:30,040 Speaker 1: down European gas prices and the relevant ellenjy spot and 489 00:30:30,120 --> 00:30:34,440 Speaker 1: slop markets quite sharply over the last couple of days. 490 00:30:35,160 --> 00:30:38,040 Speaker 1: We will probably continue to do so. So that's already happening. 491 00:30:39,080 --> 00:30:43,600 Speaker 1: Like sable and thermal markets are still reasonably tight. Do 492 00:30:43,680 --> 00:30:48,200 Speaker 1: you do disruptions in Indonesia, which is ironically due to 493 00:30:48,920 --> 00:30:53,440 Speaker 1: intensified rainfall from since the climate change driven So I 494 00:30:53,520 --> 00:30:55,320 Speaker 1: think we will start to see things normalizing as we 495 00:30:55,400 --> 00:30:57,640 Speaker 1: get towards the end of the year. China will have 496 00:30:57,800 --> 00:31:01,000 Speaker 1: very high in ventures that will not the aggressive buyers 497 00:31:01,040 --> 00:31:05,400 Speaker 1: of sake and call and Indonesia. I assume slightly more 498 00:31:05,440 --> 00:31:09,000 Speaker 1: normal weather patterns as a landin you awakends and then 499 00:31:09,520 --> 00:31:12,320 Speaker 1: they'll be up to produced more. So there's this sort 500 00:31:12,320 --> 00:31:15,280 Speaker 1: of driver of the energy, this sort of this energy 501 00:31:15,320 --> 00:31:17,840 Speaker 1: super spike does seem to be settling down quite sharply. 502 00:31:18,520 --> 00:31:20,960 Speaker 1: Is this the is the super spike that we've seen 503 00:31:21,240 --> 00:31:24,240 Speaker 1: this year in Europe? Was this sort of you know, 504 00:31:24,320 --> 00:31:26,720 Speaker 1: as you said, was it kind of a one off 505 00:31:26,800 --> 00:31:30,160 Speaker 1: fluke or is this something that due to structural factors 506 00:31:30,240 --> 00:31:33,320 Speaker 1: that will take a while to ameliorate, could see um 507 00:31:33,840 --> 00:31:37,640 Speaker 1: a recurring winter phenomenon going forward. I think this was 508 00:31:37,800 --> 00:31:40,280 Speaker 1: this is a one off. I doubt China will have 509 00:31:40,680 --> 00:31:43,719 Speaker 1: issues that's call market quite as acute as they had 510 00:31:43,800 --> 00:31:49,680 Speaker 1: last year because it was tied up with anti corruption campaigns, inspections, 511 00:31:49,720 --> 00:31:52,960 Speaker 1: and a bunch of things which are not market driven 512 00:31:53,040 --> 00:31:56,280 Speaker 1: outside but to impact market. So I don't think that 513 00:31:56,320 --> 00:32:00,320 Speaker 1: will occur again. They do appear to be happening more 514 00:32:00,360 --> 00:32:03,960 Speaker 1: cocular policies around what adventures people should hold, so we 515 00:32:04,040 --> 00:32:07,719 Speaker 1: don't get situations where things get that despered again. Um. 516 00:32:07,800 --> 00:32:10,360 Speaker 1: And then they have partially liberalized their power markets that 517 00:32:10,400 --> 00:32:13,280 Speaker 1: should give a long term signal. So I think Shina 518 00:32:13,360 --> 00:32:17,240 Speaker 1: is less likely to be a ground zero for large 519 00:32:17,360 --> 00:32:20,720 Speaker 1: shocks that propagate out through energy markets. On the other hand, 520 00:32:20,800 --> 00:32:23,440 Speaker 1: it's so big that even minor shocks in China can 521 00:32:23,520 --> 00:32:27,480 Speaker 1: feel very big elsewhere, especially if markets are generally tied otherwise. 522 00:32:28,320 --> 00:32:31,120 Speaker 1: So one thing or let me just think how to 523 00:32:31,240 --> 00:32:34,800 Speaker 1: phrase this. So I saw you tweeting late last year, 524 00:32:35,200 --> 00:32:38,080 Speaker 1: and this was still when coal prices were spiking quite 525 00:32:38,120 --> 00:32:40,680 Speaker 1: a bit, and you are basically saying everyone is about 526 00:32:40,720 --> 00:32:43,280 Speaker 1: to get shocked because prices are going to start coming 527 00:32:43,320 --> 00:32:47,400 Speaker 1: down very soon. What was it that you were seeing 528 00:32:47,880 --> 00:32:52,280 Speaker 1: in the market that perhaps others weren't seeing at that time? 529 00:32:52,800 --> 00:32:55,080 Speaker 1: Because you did turn out to be right, and of 530 00:32:55,200 --> 00:32:59,440 Speaker 1: course we have seen coal prices ease since then. There's 531 00:32:59,440 --> 00:33:03,080 Speaker 1: a lot of very niche data you can get. This 532 00:33:03,320 --> 00:33:06,520 Speaker 1: is from the Chinese railways and so forth, so you 533 00:33:06,600 --> 00:33:10,160 Speaker 1: can get data on how much coal has been loaded 534 00:33:10,360 --> 00:33:15,040 Speaker 1: in these large railheads near Minds in Mongolia and in 535 00:33:15,160 --> 00:33:19,520 Speaker 1: Shantasy in Shantasy, and then you can sort of get 536 00:33:19,600 --> 00:33:23,120 Speaker 1: the the number of trains loaded and can start to 537 00:33:23,200 --> 00:33:25,760 Speaker 1: see the like a tidalway. You can sort of start 538 00:33:25,800 --> 00:33:28,920 Speaker 1: to see the you know, the word of sucking back 539 00:33:28,960 --> 00:33:31,320 Speaker 1: from the beach before it kind of gets blows it 540 00:33:31,320 --> 00:33:33,640 Speaker 1: out away. But that's what you can say, and you 541 00:33:33,680 --> 00:33:36,160 Speaker 1: can you can get out of daily frequency. So once 542 00:33:36,240 --> 00:33:39,040 Speaker 1: that supply response really started to happen with the Minds 543 00:33:39,800 --> 00:33:41,640 Speaker 1: and then they started to essentially started all the rail 544 00:33:41,720 --> 00:33:46,600 Speaker 1: cars out from Chinese ports, northern ports up to the mines. 545 00:33:47,160 --> 00:33:50,400 Speaker 1: You knew something was coming. And even normally when the 546 00:33:50,480 --> 00:33:53,080 Speaker 1: Chinese government puts out another points bullets and to make 547 00:33:53,120 --> 00:33:55,760 Speaker 1: something happen, it's normally pretty safe. Bet of all happen. 548 00:33:55,920 --> 00:33:59,480 Speaker 1: Let's just short. But the size of the response I 549 00:33:59,560 --> 00:34:04,800 Speaker 1: think was quash shopping to a table obviously, like higher 550 00:34:04,880 --> 00:34:10,440 Speaker 1: commodity prices, higher energy prices, inflation, higher transport costs, inflation 551 00:34:10,520 --> 00:34:13,800 Speaker 1: more broadly around the world, Like, it does feel like 552 00:34:13,880 --> 00:34:17,360 Speaker 1: there's a lot of temporary or transitory factors driving it. 553 00:34:17,480 --> 00:34:20,400 Speaker 1: I know we're not like supposed to use that word anymore, 554 00:34:20,480 --> 00:34:22,879 Speaker 1: and I know that that there's more to life than 555 00:34:23,040 --> 00:34:25,839 Speaker 1: like what's happening in the Chinese coal market. But when 556 00:34:25,880 --> 00:34:29,160 Speaker 1: you think about, like how you know the idiosyncratic factors 557 00:34:29,440 --> 00:34:32,239 Speaker 1: happening in the Chinese coal market, the way that and 558 00:34:32,320 --> 00:34:35,080 Speaker 1: I loved your analogy of a large adult jumping on 559 00:34:35,320 --> 00:34:37,840 Speaker 1: a trampoline with a bunch of little kids, uh, the 560 00:34:37,880 --> 00:34:42,280 Speaker 1: way that filtered into European prices, the way that European 561 00:34:42,480 --> 00:34:46,360 Speaker 1: energy prices have filtered into fertilizer prices, the way fertilizer 562 00:34:46,440 --> 00:34:51,120 Speaker 1: prices feud food prices, and so forth, it's hard like 563 00:34:51,320 --> 00:34:53,799 Speaker 1: not to sort of feel like, yeah, there really are 564 00:34:54,040 --> 00:34:56,000 Speaker 1: a lot of transitory factors. I don't know whether like 565 00:34:56,040 --> 00:34:58,759 Speaker 1: inflation totally normal, but a bunch of weird stuff has 566 00:34:58,760 --> 00:35:01,040 Speaker 1: gone on. I think so. But I think one thing 567 00:35:01,080 --> 00:35:04,359 Speaker 1: that's also interesting with cal and China in particular, when 568 00:35:04,400 --> 00:35:07,239 Speaker 1: they the prices got off to two thousand women be 569 00:35:07,320 --> 00:35:10,160 Speaker 1: a time for thermal which is just absolutely bananas. But 570 00:35:10,239 --> 00:35:12,440 Speaker 1: then it was quite shocking the people as China came 571 00:35:12,480 --> 00:35:14,359 Speaker 1: out and said no, i'll we want a long term 572 00:35:14,480 --> 00:35:18,439 Speaker 1: time to contract price of you know, seven d women 573 00:35:18,520 --> 00:35:21,359 Speaker 1: be a time which people are shocked by because because 574 00:35:21,360 --> 00:35:24,239 Speaker 1: you know, pre COVID was five And I think, what 575 00:35:25,040 --> 00:35:28,160 Speaker 1: what China is doing there, which is quite shrewd, is it? 576 00:35:28,320 --> 00:35:33,040 Speaker 1: In all the craziness and inflationary impulsible these disruptions, China 577 00:35:33,120 --> 00:35:36,840 Speaker 1: is using this opportunity to force a re pricing of 578 00:35:37,160 --> 00:35:40,319 Speaker 1: fossil energy and China through to industry and then has 579 00:35:40,320 --> 00:35:43,520 Speaker 1: big impacts because when you smelled a ton of aluminium um, 580 00:35:43,600 --> 00:35:46,479 Speaker 1: you need about eleven megaworks do that, and so that's 581 00:35:47,280 --> 00:35:50,400 Speaker 1: eleven times having a fifty womanty. You know, it's like 582 00:35:50,920 --> 00:35:52,560 Speaker 1: pushing on the price of element in the new order 583 00:35:52,600 --> 00:35:56,239 Speaker 1: of fifty bucks. They're sort of pushing through these kind 584 00:35:56,280 --> 00:36:02,120 Speaker 1: of policy driven re pricings because I do want um space, 585 00:36:03,520 --> 00:36:09,319 Speaker 1: colbon transition and change incentives around um consumption of very 586 00:36:09,440 --> 00:36:12,560 Speaker 1: energy intensive products to a certain extent. On the other hand, 587 00:36:12,600 --> 00:36:14,840 Speaker 1: they've got it, They've got the social stability and maintaining 588 00:36:15,000 --> 00:36:17,680 Speaker 1: sort of you know, employment, all the other objectives they have. 589 00:36:17,880 --> 00:36:19,680 Speaker 1: But there is a sign that they're kind of willing 590 00:36:19,680 --> 00:36:21,439 Speaker 1: to take a bit more pain than they were last 591 00:36:21,480 --> 00:36:25,440 Speaker 1: time on some of these cost changes. So there are 592 00:36:25,600 --> 00:36:29,640 Speaker 1: some fundamental changes here, and you know, there's sort of 593 00:36:29,800 --> 00:36:32,520 Speaker 1: China putting a bit of a floor under the price 594 00:36:32,560 --> 00:36:34,719 Speaker 1: of coal and therefore the under the price of other 595 00:36:34,760 --> 00:36:38,719 Speaker 1: commodity production that are not just going to revert to 596 00:36:38,840 --> 00:36:42,160 Speaker 1: pre COVID level sort of a de facto or implicit 597 00:36:42,320 --> 00:36:45,840 Speaker 1: like carbon tex the way economists in Europe and the 598 00:36:45,920 --> 00:36:49,239 Speaker 1: US proposed. And you are saying that comfort like you 599 00:36:49,320 --> 00:36:52,400 Speaker 1: talk to companies like Shahua, which is like Shina's biggest 600 00:36:52,719 --> 00:36:56,560 Speaker 1: color mine. I asked the intent and you guys can 601 00:36:56,640 --> 00:37:00,200 Speaker 1: try to under renewables or something that I've never paid 602 00:37:00,239 --> 00:37:03,239 Speaker 1: myself sidies on time. The term business and you know, 603 00:37:03,719 --> 00:37:06,239 Speaker 1: thank you, And now that they're just announced, they're going 604 00:37:06,320 --> 00:37:09,120 Speaker 1: to be revealable. So essentially the policy signals and they 605 00:37:09,160 --> 00:37:13,279 Speaker 1: sort of will of the party state is to get 606 00:37:13,400 --> 00:37:16,160 Speaker 1: things done in this area. Now, whether they can tolerate 607 00:37:16,360 --> 00:37:20,120 Speaker 1: slow down in real estate and other considerations to be seen. 608 00:37:20,239 --> 00:37:22,759 Speaker 1: But in other ways, this is there are signs of 609 00:37:22,800 --> 00:37:26,239 Speaker 1: them being more serious than they've been quite some time. 610 00:37:27,400 --> 00:37:30,000 Speaker 1: All right, Alex, that was a fantastic discussion and a 611 00:37:30,080 --> 00:37:32,440 Speaker 1: really good round up of what's going on in the 612 00:37:32,520 --> 00:37:36,160 Speaker 1: space and drawing the connections between China and Europe. So 613 00:37:36,800 --> 00:37:40,440 Speaker 1: thank you so much for coming on all thoughts. Thank 614 00:37:40,440 --> 00:37:43,120 Speaker 1: you so much, guys, really inga that was great. Thanks 615 00:37:43,120 --> 00:37:57,080 Speaker 1: for so Joe. I obviously thought that was a very 616 00:37:57,160 --> 00:38:00,360 Speaker 1: interesting conversation. One of the things that struck me was 617 00:38:01,160 --> 00:38:03,480 Speaker 1: I think energy might be one of the few places 618 00:38:03,560 --> 00:38:07,120 Speaker 1: where there's actually policy agreement between China and Europe. So 619 00:38:07,560 --> 00:38:10,800 Speaker 1: Europe wants energy prices to come down, China wants to 620 00:38:10,880 --> 00:38:15,120 Speaker 1: build out its energy efficiency and self sufficiency, and sort 621 00:38:15,160 --> 00:38:18,080 Speaker 1: of going back to that trampoline analogy, you know, the 622 00:38:18,239 --> 00:38:23,000 Speaker 1: kids want the adult to get their own trampoline, I guess, 623 00:38:23,239 --> 00:38:27,880 Speaker 1: and the adult wants their own trampoline too, So you know, 624 00:38:28,000 --> 00:38:30,320 Speaker 1: if both of those parties are aligned, it seems like 625 00:38:30,440 --> 00:38:34,120 Speaker 1: at some point that could happen. One thing that I've 626 00:38:34,200 --> 00:38:39,920 Speaker 1: always liked about Alex's work and research and just following 627 00:38:40,000 --> 00:38:42,480 Speaker 1: his stuff and talking to him over many years is 628 00:38:43,200 --> 00:38:47,680 Speaker 1: the granular level of detail that he knows about all 629 00:38:47,760 --> 00:38:50,160 Speaker 1: these different industrial process whether it's like how much it 630 00:38:50,320 --> 00:38:53,880 Speaker 1: costs to make steel and the various the electricity budget 631 00:38:53,960 --> 00:38:57,920 Speaker 1: for steel or aluminum. And obviously he talked about how 632 00:38:57,960 --> 00:38:59,719 Speaker 1: he was able to sort of anticipate the move in 633 00:39:00,680 --> 00:39:06,840 Speaker 1: by looking at railroadings. There's a deep granularity. I guess, 634 00:39:06,920 --> 00:39:09,000 Speaker 1: like if you know you're talking about if you're going 635 00:39:09,080 --> 00:39:13,520 Speaker 1: to be working in the business of buying of distressed 636 00:39:13,600 --> 00:39:18,600 Speaker 1: assets of industrial or commodity related companies, you really have 637 00:39:18,800 --> 00:39:22,520 Speaker 1: to know, like nuts and bolts, what the value uh 638 00:39:22,719 --> 00:39:25,440 Speaker 1: and what the potential recovery you know, I guess I 639 00:39:25,480 --> 00:39:28,440 Speaker 1: would like to understand recovery values of these assets. You 640 00:39:28,560 --> 00:39:30,840 Speaker 1: really have to know like the various input costs of 641 00:39:30,920 --> 00:39:33,280 Speaker 1: what you can get out of them. Yeah, it definitely 642 00:39:33,480 --> 00:39:36,320 Speaker 1: seems like that's the case. The other thing that I 643 00:39:36,440 --> 00:39:39,000 Speaker 1: was thinking about is, I guess all eyes on Mongolia 644 00:39:39,200 --> 00:39:42,840 Speaker 1: and China relations for the foreseeable future, because it also 645 00:39:42,920 --> 00:39:45,880 Speaker 1: seems like that's a dynamic where it does have the 646 00:39:45,920 --> 00:39:51,000 Speaker 1: potential to impact the energy space quite significantly. Absolutely, But 647 00:39:51,200 --> 00:39:54,120 Speaker 1: and I'm really glad like the point that he made 648 00:39:54,239 --> 00:39:57,120 Speaker 1: at the end. It's like, Okay, so coal prices went nuts, 649 00:39:57,280 --> 00:40:01,360 Speaker 1: and obviously China needed to make changes to address that. 650 00:40:01,840 --> 00:40:04,320 Speaker 1: But the idea that like they really don't want to 651 00:40:04,920 --> 00:40:08,040 Speaker 1: or at least at the moment, they don't want to 652 00:40:08,440 --> 00:40:13,520 Speaker 1: go back to the pre crisis cheap prices, and that 653 00:40:13,680 --> 00:40:16,560 Speaker 1: this is an opportunity for transition, and so setting this 654 00:40:16,680 --> 00:40:20,760 Speaker 1: floor is really interesting and I definitely think listeners, hopefully 655 00:40:20,920 --> 00:40:23,520 Speaker 1: if they haven't, need to go back and listen to 656 00:40:24,320 --> 00:40:27,160 Speaker 1: the episode that we just recorded with Travis Lundie, because 657 00:40:27,200 --> 00:40:29,400 Speaker 1: I hadn't thought about that really at all, although of 658 00:40:29,440 --> 00:40:32,160 Speaker 1: course it makes sense that it's part and parcel of 659 00:40:32,200 --> 00:40:35,400 Speaker 1: the same thing, Like there's if you want to have 660 00:40:35,800 --> 00:40:40,960 Speaker 1: a more sustainable energy budget, part of it might involve changing, um, 661 00:40:41,560 --> 00:40:45,440 Speaker 1: the pace of real estate development. Yeah, it's interesting how 662 00:40:45,520 --> 00:40:47,719 Speaker 1: those two seem to fit together. And you're right, I 663 00:40:47,840 --> 00:40:52,359 Speaker 1: haven't thought about that before. In any case, lots going 664 00:40:52,440 --> 00:40:55,560 Speaker 1: on in China and the Chinese economy. Should we leave 665 00:40:55,560 --> 00:40:58,359 Speaker 1: it there? Let's leave it there? All right? This has 666 00:40:58,400 --> 00:41:02,320 Speaker 1: been another episode of the Odd Loots Podcast. I'm Tracy Alloway. 667 00:41:02,440 --> 00:41:06,120 Speaker 1: You can follow me on Twitter at Tracy Alloway and 668 00:41:06,239 --> 00:41:08,320 Speaker 1: I'm Joe Why Isn't Though. You can follow me on 669 00:41:08,440 --> 00:41:11,959 Speaker 1: Twitter at the Stalwart. Follow our guest Alex Turnball. He's 670 00:41:12,040 --> 00:41:16,640 Speaker 1: at Alex B. H. Turnbull. Follow our producer Laura Carlson 671 00:41:16,920 --> 00:41:20,080 Speaker 1: at Laura M. Carlson. Follow the Bloomberg head of podcast, 672 00:41:20,160 --> 00:41:23,719 Speaker 1: Francesca Levie at Francesca Today. And check out all of 673 00:41:23,800 --> 00:41:27,680 Speaker 1: our podcasts in Bloomberg under the handle at podcasts. Thanks 674 00:41:27,719 --> 00:41:28,160 Speaker 1: for listening.