China battles to contain coal price surge as dependency worsens

Prices have powered above 800 yuan (S$169) a tonne, but are still lower than the highs hit in October 2021. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China's dependency on coal is likely to worsen this year as the authorities struggle to rein in prices after the Chinese New Year break.

Chinese miners dug up more than four billion tonnes of the dirtiest fossil fuel for the first time in 2021. The effort to stave off power outages involved unleashing some 300 million tonnes of capacity that is still producing, and which is likely to add another 1 per cent or 2 per cent to annual output this year, according to forecasts from the Shanghai Shipping Exchange.

For demand, the exchange cited industry predictions that consumption is likely to grow by 0.5 per cent a year until 2025 to 4.2 billion tonnes. It said industrial usage could slow as exporters face stiffer competition from other countries recovering from the pandemic, while Chinese manufacturers will continue to be constrained by energy conservation rules.

Thermal coal futures, meanwhile, have recovered all of the slump that occurred just before the Chinese New Year holiday as power plants rebuild stockpiles and traders ignore for now the government's pledge to control prices.

In its latest attempt to cool the market, the state planning agency noted that output has returned to pre-holiday levels and that inventories are significantly above where they were a year ago. The intervention made little difference to the contract in Zhengzhou, which has powered above 800 yuan (S$169) a tonne in an explosive start to the week.

Still, while that is a historically high level, it pales beside the near 2,000 yuan a tonne hit in October last year.

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