China to Boost Domestic Coal Production to Ensure Energy Security

China, the world’s largest coal consumer and producer, announced that it would boost domestic production to ensure its energy security. Newcastle thermal coal futures fell more than $US70 a tonne to $US335 a tonne on Friday night for the October ICE contract. China has been hard by its ill-thought-out trade war with Australia which put them behind the queue as record prices for top quality Australian hard coking coal were set regularly in June the price hit $US430 (AUD$595) a tonne almost four times the price in May. Since then, coal has pulled back to the $350-per-tonne zone for the first time since May.  China has also signaled that it could lift a nearly two-year ban on Australian coal

China has never officially acknowledged a ban was in place for political reasons, as it would be a violation of World Trading Organization (WTO) rules. China had a record cold winter, a showdown with Australia who are the biggest coal exporter in the world and the CCP trying to implement emission standards.

Coking Coal

Coal prices had risen unabated with supply chain disruptions. Strong demand in Korea and Japan has fueled the rally. Much of the price fall comes from China’s covid policies. Shanghai has remained remains largely shuttered for seventeen consecutive weeks. Air cargo operations remain severely constrained at PVG.  Ramp handlers, truckers, and key employees have seen limited access to airport and cargo facilities. As a result, most major airlines and air cargo carriers have canceled flights in and out of PVG.

ICE Newcastle Coal Oct ’22 (LQV22)

  • 349.00 +14.95 (+4.48%) 08:05 CT[ICE/EU]
  • 347.00 x 1 357.00 x 1
  • Mon, Aug 8th, 2022
ICE Newcastle Coal Oct ’22 – 8/8/22

With few logical geographic alternatives to PVG, cargo backlogs continue to mount. When combined with new production volumes as the city itself reopens, we estimate that backlogs could take weeks to clear, driving significant capacity tightness on PVG-based lanes, and thus materially increasing prices.

Before the recent pullback further pressure on coal prices came from BHP, the world’s biggest coking coal exporter announced they would produce 7 per cent less than expected in the year to June 2022. BHP supply had been hampered by high rainfall in the Queensland coalfields and workforce absentee levels in line with high COVID-19 infection rates.

Given the backdrop, coal prices are poised to remain elevated amid robust demand and persistent global supply disruptions exacerbated by the Russian invasion of Ukraine. Europe is now turning to seaborne coal from South Africa and Australia as it halts imports from Russia. Demand for coal in India, the world’s second-biggest coal importer behind China, is expected to rise almost 10% in 2022 as the country’s economy expands and electricity use increases.

Source: Barchart

From The TradersCommunity Research Desk