China steps up efforts to avert summer coal shortages

Source : https://www.argusmedia.com/en/news/2202770-china-steps-up-efforts-to-avert-summer-coal-shortages

 

China's main economic planning agency the NDRC held another meeting today to discuss measures to ensure the country will have enough coal for the summer peak demand season when air-conditioning requirements increase.

The meeting was attended by market participants that included utilities, coal producers, rail operators, port authorities and government agencies. China's coal stocks are unusually low for this time of year, which has pushed up domestic NAR 5,500 kcal/kg prices to well above the government-set upper limit of 600 yuan/t ($91.74/t). This market rose by Yn48.34/t over the week to Yn736.67/t on 1 April, according to Argus assessments. Prices in US dollar terms increased by $7.03/t to $112.32/t.

Today's meeting follows one late last week with a similar agenda, underscoring the emphasis from the NDRC to prevent a repeat of the coal shortages China experienced during winter, when heating demand surged against limited coal stocks.

 

Predictable policies sought

Many of the utilities urged for there to be a stable and predictable system of coal import quotas, citing concerns that domestic spot prices for the first quarter were too high at the average of Yn760/t. Current stocks at more than a quarter of the country's utilities can only last for no more than seven days because of high coal consumption, market participants said.

The import quota system has been introduced in recent years to manage the flow of seaborne coal into China. But some market participants said that the system is non-transparent in terms of exact allocation volume, which could complicate trading decisions. Importers unable to secure the necessary quotas can face a lengthy wait for customs clearance of seaborne cargoes, during which the calorific value of coal could fall because of exposure to the elements.

The latest suggestion comes just after the Huangpu customs in south China imposed limits on coal imports to offset high imported volumes during late 2020.

China imported a record high of 39.08mn t of all types of coal in December 2020 during the country's severe shortage, which was more than 14 times higher from a year earlier, according to customs data. But January-February imports slumped by 39.5pc from the previous year, partly because of strong December imports and an expected slump in demand over the lunar new year holidays in February.

 

Output boost urged

The NDRC urged domestic producers to raise output, setting a target to maintain stocks at the key coal transshipment port of Qinhuangdao at a minimum of 5mn t for the summer restocking season. Coal inventories at the port were 4.55mn t yesterday compared with 6.72mn t on the same day last year.

But continuing maintenance at the Daqin railway, which is expected to last until early May, could pose a challenge to the target by limiting coal delivery volumes to Qinhuangdao.

Coal producers China Shenhua and China Coal Energy said during the meeting that they had increased their output for the first quarter by 15pc against the same period last year, according to market participants. But this could be because of a low base to compare with, given unprecedented production setbacks when China experienced the worst of the Covid-19 impact during this 2020 first quarter. Both companies suggested the introduction of more stable price mechanisms to cover any further increases in output.

The NDRC also suggested that power generation from non-coal sources should be raised to reduce the impact of any shortages, although details were scarce.

 

Market reacts

China's coal futures slumped today following the latest NDRC meeting, after weeks of sustained increases. The May contract on the Zhengzhou commodity exchange closed at Yn689.80/t today, down from Yn734.80/t yesterday.

Some market participants expect domestic coal output to be raised with the government pressure. But others said that enhanced safety inspections on the coal sector following recent fatal accidents could complicate the progress. It remains to be seen if the enthusiasm to raise coal production will be shared broadly across China's main coal-producing regions.

By Kelvin Leong

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