Coal supplies in China will continue to be tight and prices will stay high due to suspension of production at mines and tighter import controls since April, analysts said.
“The price of thermal coal has been driven up by rising demand and tight supply,” said Zhu Yi, a Hong Kong-based analyst at Bloomberg Intelligence.
“While demand from power plants increases on hot weather and will continue to be high in the peak season of summer, supply has been tight due to production suspension as the government implements stricter environmental checks.”
Zhu estimated that supplies may improve in the second half of this year, and high demand will likely ease after the peak season, so coal companies may yet post profits this year.
China’s power producers have been challenged by extreme weather this year, including the cold snap in January and the heat wave in May. This increased coal imports by 8.2 percent to 121 million metric tons in the first five months of this year.
Coal prices kept surging as a result. Thermal coal prices at ports along the Yangtze River Delta reached 700 yuan ($107.7) per ton as the heat wave stoked demand in China.
The National Development and Reform Commission, China’s top economic planner, said earlier coal prices ranging between 500 yuan per ton and 750 yuan per ton can be considered reasonable.
The commission has vowed steps like increased supply and regulatory efforts to stabilize coal prices. It said the recent rally in coal prices was not supported by market fundamentals.
Two major coal-fired power producers have banned spot purchases of thermal coal above certain prices amid a bearish outlook for the market in the coming months, a Reuters report said.
Adequate stocks of coal at power plants and consumption of more clean energy will help prevent a surge in coal prices, while China will also take multiple measures to stabilize coal prices, like augmenting production and introducing more efficient capacity, said the commission.
Plans are also being made to improve rail capacity for coal transportation from miners in the western regions to coal-fired power plants in eastern parts of the country.
The state planner expects coal output in Shaanxi, Shanxi and Inner Mongolia autonomous region, the country’s main coal producers, to increase by about 250 million tons this year.
The three regions saw their combined coal production reach 2.3 billion tons in 2017, or two-thirds of China’s total coal output.
Strong demand and rising plant utilization have driven up coal consumption, brightening China’s power-sector prospects this year, said Joseph Jacobelli, a senior analyst of Asian utilities at Bloomberg.
“We think demand will rise at least 6 percent this year, slower than last year’s 6.6 percent but enough to allow average utilization rates to increase,” he said.
“Coal generators will continue and even accelerate their investments to build renewable energy assets, bolstering utilization of hydro, nuclear, solar and wind resources, so as to ensure top-line growth and boost profitability.”