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China coal hits record high amid tight supplies

China coal hits record high amid tight supplies

Water vapour rises from a cooling tower of a China Energy ultra-low emission coal-fired power plant during a media tour, in Sanhe, Hebei province, China, Jul 18, 2019. (File photo: Reuters/Shivani Singh)

BEIJING: China coal prices hit a record high on Tuesday (Oct 19) buoyed by a widening power crunch and cold weather despite Beijing's efforts to bolster supply.

Thermal coal for January delivery, the most actively traded contract on the Zhengzhou Commodity Exchange, hit a record high of 1,982 yuan per tonne.

Prices are up more than 260 per cent year to date.

With winter approaching temperatures in most central and eastern regions have been lower than normal in the past 10 days, data from China's National Meteorological Centre showed.

"Plunging temperatures across parts of China stoked fears that shortages in power are likely to increase over the coming northern hemisphere winter," ANZ analysts said in a note to clients.

Shortages of coal, high fuel prices and booming post-pandemic industrial demand have sparked widespread power shortages.

Power rationing has been in place in at least 17 of mainland China's more than 30 regions since September, forcing some factories to suspend production, disrupting supply chains and adding to factory gate inflation concerns.

Last week, China took its boldest step in power reform by allowing coal-fired power plants to pass on higher costs to some customers, with an aim to encourage power plants to generate more electricity and ease their profitability pressures.

Power-hungry industries such as steel, aluminium, cement and chemical producers are expected to face higher and more volatile power costs under the new policy, inflating their costs and pressuring profit margins. 

Alumina and aluminium producers in the southwestern Guangxi region are facing higher power costs, ANZ analysts said.

"Guangxi will put a 50 per cent premium on electricity prices for the most energy-intensive industries," they said.

Beijing has enacted measures to increase the output of coal, which fuels nearly 60 per cent of its power plants, with government data on Monday indicating some increase to supply.

Daily coal output recently hit 11.5 million tonnes, up more than 1.2 million tonnes from mid-September, the National Development of Reform Commission said.

Source: Reuters/ng

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