Chinese thermal coal prices rose a fourth day for a 13% gain this month, and they remain stubbornly above the 600 yuan ($92) a ton mark that in the past has prompted the state to step in.
They could go higher still as China’s worst sandstorm in a decade — which may in part have been caused by coal mining — tightens supply, and the authorities launch a new round of inspections at mines.
China’s efforts to wean itself off its abundance of coal are centered at the moment on cutting unsafe or old capacity, while promoting alternatives to pick up the slack. But that’s a long and lumpy process, and controlling prices becomes difficult when the weather is cold or the economy is running hot because so much activity is keyed to burning the fuel.
Near-term coal demand continues to be backstopped by robust industrial production, according to Daiwa Capital Markets. On the supply side, Fengkuang Coal Logistics notes that a shortage in the Chongqing region, which closed some outdated mines in January, has left its main city of about 16 million people dependent on shipments from neighboring Shaanxi province.
Longer term, though, the environmental impact of the orange fog that has enveloped northern China is likely to stiffen the government’s resolve to curb coal consumption and speed up the development of renewables, according to BI. China’s key coal-producing regions are the sources of the sandstorm and mining activities that damage water resources are likely to be the major culprits that caused it, BI said.
China Coal Energy, the nation’s second-biggest producer by market value, is among the companies reporting earnings today.