China’s coal imports rebound amid to power crisis

6:01 PM

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China’s coal imports rebound amid to power crisis

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SHANGHAI: Lofty steam coal prices in China and a worsening power shortage in the world’s second-largest economy is set to boost imports of the fuel from Indonesia and Australia over the summer months, ending months of muted demand.

The current power crunch has also begun to hurt domestic demand of aluminium and zinc as smaller smelters suspend output.

However, an extended power restriction could eventually cut China’s metals production and lift its overseas purchases in the coming months, traders and analysts said on Friday.

China’s steam coal prices, which rose steadily over April to a 4-month high of 820 yuan ($126.116) a tonne this week, has forced many state-owned and private power plants across the country to cut power production as a way of reducing losses.

Some privately-owned small to medium utilities have even shut down plants to stem financial bleeding, after they struggled for months to make ends meet.

For those power plants that are still in business, every cent of savings counts, and imports are looking ever more attractive as rising domestic prices reopen the arbitrage window for Indonesian and some off-spec Australian coal.

“Business has definitely picked up over the past few weeks and I think demand for imports could be even stronger in the coming months,” said a Beijing-based trader.

Although China, the world’s biggest consumer and producer of coal, suffers from chronic power shortages during the summer and winter months, the rationing has come earlier by nearly two months this year, amid government warnings that the country could face one of its worst summer power shortages.

Local governments in eastern Jiangsu, Jiangxi and Zhejiang, southern Guangdong and the central Henan region have already begun to restrict power supply to the energy intensive industries, with some heavy industry manufacturers in Zhejiang ordered to operate only five days a week, analysts said.

The current power restrictions have forced small to mid-sized steel, cement, aluminium, lead and zinc plants in some provinces to suspend output for several days a week.