Coal Getting Cheaper in China Despite Heat-Induced Demand Surge

Coal Getting Cheaper in China Despite Heat-Induced Demand Surge
Despite scorching heat boosting power demand, Chinese coal hasn't been this cheap in over two years.
Image by Bet_Noire via iStock

Despite scorching heat boosting power demand as fans and air conditioners get switched on, Chinese coal hasn’t been this cheap in over two years — and it could get even cheaper. 

The fuel used by power plants dropped this week to 772 yuan ($108) a ton at the port of Qinhuangdou, its lowest since April 2021. The latest figures on supply show domestic production running nearly 5% ahead of last year, while imports have risen a whopping 90%. Indicators, from elevated inventories to a contraction in manufacturing activity, all point to souring demand as China’s economic recovery stalls.

The benchmark could hit 600 yuan a ton in July, according to the China Coal Transport and Distribution Association, as unwanted fuel stacks up at mines because power plants are out of storage space. The association expects total supply to rise 9% this year, far outstripping growth in demand. 

What could change that dynamic is the weather. Large parts of the country are now cranking up the air-conditioning much earlier in the year than is usual, and drawing on an electricity grid fed chiefly by coal to deal with the heat. 

So all eyes are on the nation’s thermostats, and the market could still bounce around before testing new lows if conditions worsen, Zhang Yupeng, an analyst at the association, told a briefing on Wednesday. But on balance, prices are set to fall.

“If power usage doesn’t strengthen beyond expectation in June, then plants will dump inventory and the price will crash,” he said. 

Coal demand could soften further if the rains forecast for June, particularly in the hydropower-rich southwest, lift the supply of China’s main source of clean energy. 

Imports, meanwhile, continue to crowd out domestic production because overseas coal is cheaper and better. China’s rush to produce more of its own fuel has affected quality, and some power plant inventory has seen heating values drop by 6% to 7%, said Zhang.

Fengkuang Coal Logistics said it expects another bumper month for imports in June of no less than 38 million tons, double last year’s haul. Although the hot weather has lifted sentiment, “the market’s situation has not fundamentally improved,” in large part because of the sheer volume of coal moving into China, the research firm said in a note.

Beijing’s strategy of front-loading supply of its mainstay fuel will hopefully pay off and the power shortages of previous years will be averted. But as extreme weather becomes more commonplace, there’s increasingly little mileage in a policy of keeping cool by burning ever more planet-warming coal.

What do you think? We’d love to hear from you, join the conversation on the Rigzone Energy Network.

The Rigzone Energy Network is a new social experience created for you and all energy professionals to Speak Up about our industry, share knowledge, connect with peers and industry insiders and engage in a professional community that will empower your career in energy.

Most Popular Articles