Australian shares are set to follow New York lower as data pointed to enduring US economic strength. Trade balance at 11.30am. Follow updates here.
Bank of America commodity strategist Francisco Blanch said a stronger link has emerged between the price of coal in China and both Asian and European gas prices.
“Just like Rockies coal is a floor to US Henry Hub gas prices that triggers huge fuel switching dynamics in the American power generation network, we believe that China coal is quickly turning into a floor to both Asian and European gas prices that will trigger substitution dynamics if prices are low enough.”
In his note, Mr Blanch offered a wider view: “Looking across the entire mix, 55 per cent of Chinese energy continues to come from coal despite efforts to diversify away from the dirtiest of fuels, and it even marginally grew in the past two years as natural gas consumption retraced on high international LNG prices.
Still, China is all about price and the key to a steady, reliable, and secure energy supply system is flexibility, Mr Blanch said.
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