Coal Price Surged in China Backed by Strong Demand

China’s dependency on coal is likely to worsen this year as the authorities struggle to rein in prices after the Lunar New Year break.

In terms of supply Chinese miners extracted more than 4 billion tons of coal in 2021 and to keep power outages at bay 300 million tons of capacity still being produced and likely to add add 1% or 2% to annual output this year, according to forecasts from the Shanghai Shipping Exchange.

The exchange noted industry predictions that consumption is likely to grow by 0.5% a year through 2025 to 4.2 billion tons. It also added demand from manufacturing would slow as exporters in China faces stiffer competition as well as 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 lunar 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 a ton in an explosive start to the week.

Still, while that’s a historically high level, it pales beside the near-2,000 yuan a ton hit in October at the height of the energy crisis.