China’s glut of coal locks market in vicious cycle of decline
Chinese coal prices remain locked in a downward spiral due to a persistent glut of the fuel, according to the country’s top industry group.
The optimism that’s taken hold in the wake of China’s trade truce with the US doesn’t extend to the market for power fuels, with utilities reluctant to buy while inventories are full and prices are falling, said the China Coal Transportation and Distribution Association.
Miners, meanwhile, are responding to pressure from local governments keen to boost revenues to ease their own fiscal woes. The result is a vicious cycle that ultimately isn’t sustainable, Li Xuegang, an analyst at the association, said at a briefing on Wednesday.
Rising levels of production and contracting demand have pushed prices below cost in some cases, Li said. The benchmark at the port of Qinhuangdao was last quoted at a four-year low of 630 yuan a ton after dropping 17% this year. Mining profits have plunged, with worse probably yet to come.
Chinese coal output climbed 8.1% to a record 1.2-billion tons in the first quarter. At the same time, thermal power generation, which mostly uses coal, fell 2.3%, challenged by the country’s rapid adoption of clean energy. Power market liberalisation from June should make renewables even cheaper.
Imports at least are dwindling as shipments become uneconomic, although they only accounted for 11% of Chinese consumption last year. Otherwise, the market will be looking to weather forecasts for indications of a hotter-than-usual summer, said Li, with increased demand from air-conditioners a possible brake on price declines.
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