Fuel shortage triggers upside for thermal coal in China

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China’s thermal coal prices jumped recently as natural gas shortages across the north spurred an unexpected resurgence in demand for coal-fired power. Coal futures jumped to 689.8 yuan ($104) per metric ton on December 11, topping a previous all-time high of 688.8 yuan set the previous week.

China Coal Price Index, the first index of its kind in the country, rose by 0.7 percentage points to 156.6 on December 8. The price of 5,000 kilocalorie coal and 5,500 kilocalorie coal in the northern ports reached 591 yuan and 612 yuan per ton respectively on December 8, up by 5 yuan and 2 yuan respectively from a week earlier.

The increase comes after the country was forced to put the brakes on its ambitious push to convert millions of households to gas or electric heating. Because of a gas shortage, people have been told they can return to coal heating if needed.

On December 7, the Beijing municipal government ordered an immediate restart of coal-fuelled generators to ease the shortage of liquefied natural gas in northern China.

The city was told by the National Development and Reform Commission to immediately resume the backup coal-fired power plant run by China Huaneng Group. The Huaneng coal-fired power plant, with installed capacity of 845 megawatts, was shut in March in a bid to reduce harmful emissions in the city.

On December 4, the Ministry of Environmental Protection told northern regions to allow coal burning in places that have not converted to gas or electric heating in order to “ensure a warm winter” for the public.

Four central government branches, including the National Development and Reform Commission and the Ministry of Environmental Protection, would send inspection teams to 11 provinces across northern China to ensure households have heating during winter.