This time last year, Chinese coal prices were soaring as power plants scrambled for supplies after an historic drought caused hydropower output to collapse. The market for China’s mainstay fuel today is far more sedate. Although prices have crept higher in recent weeks, record imports and the impact of a fragile economy on consumption are likely to cap costs heading into the next period of peak demand over the winter. But that’s not to say pressure points on supply won’t emerge.
This time last year, Chinese coal prices were soaring as power plants scrambled for supplies after an historic drought caused hydropower output to collapse.
The lessons learned from the drought have framed the market’s trajectory over the past year. Fearful that its exit from Covid Zero would cause demand to surge, Beijing pushed miners and importers to ensure supplies were more than sufficient to cope. That allowed China to avoid the power outages that have crippled the economy in recent years, particularly over the scorching summer period when demand for air-conditioning spikes.
Both Daiwa Capital Markets and Morgan Stanley have pointed to weak consumption as limiting any further increases in price, according to notes from analysts this week.Of course, another extreme weather event, which are becoming increasingly frequent as the planet heats up, could rip up market forecasts. And there are other threats bubbling under that may affect supply.
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