Despite the scorching heat driving up energy demand as fans and air conditioners fire up, Chinese coal hasn’t been this cheap in more than two years, and it could be even cheaper.
Fuel used by power plants fell this week to 772 yuan ($108) a tonne at the port of Qinhuangdou, its lowest level since April 2021. The latest supply figures show domestic production it is up almost 5% on last year, while imports have increased. 90% Indicators, from high inventories to a contraction in manufacturing activity, point to sour demand as China’s economic recovery stalls.
The benchmark could reach 600 yuan a tonne in July, according to the China Coal Transport and Distribution Association, as unwanted fuel piles up in mines as power plants run out of storage space . The association expects total supply to increase by 9% this year, far outstripping demand growth.
What could change this dynamic is time. Large parts of the country are turning on their air conditioning much earlier in the year than usual and using a mainly coal-fired electricity grid to cope with the heat.
So all eyes are on the country’s thermostats, and the market could still bounce back before testing new lows if conditions worsen, Zhang Yupeng, an analyst at the association, told a briefing on Wednesday. But ultimately, prices will fall.
“If energy use doesn’t strengthen beyond expectations in June, plants will dump inventory and the price will crash,” he said.
Coal demand could soften further if rains forecast for June, particularly in the hydropower-rich southwest, boost supplies of China’s main source of clean energy.
Meanwhile, imports continue to displace 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 inventories have seen heating values decline by 6% to 7%, Zhang said.
Fengkuang Coal Logistics said it expects another heavy month for imports in June of no less than 38 million tonnes, double last year’s haul. While the warm weather has boosted sentiment, “the market situation has not fundamentally improved,” largely due to the large volume of coal moving to China, the research firm said in a note.
Beijing’s strategy of front-loading its main fuel supply is expected to pay off and avoid the energy shortages of previous years. But as extreme weather becomes more common, there is less and less mileage in a policy of staying cool by burning more and more planet-warming coal.
