Forecasts for an unseasonable heat wave in many parts of China before the peak summer season have halted a decline in coal prices as utilities look to produce more power to meet demand for airconditioning.
Many of China’s major cities in north, central and southern regions are set for a warmer than usual June, forecasts from China’s Meteorological Administration show, with Beijing set to hit 35.6 degrees Celsius (96°F) on Sunday.
Demand for thermal coal, which accounts for about two-thirds of China’s total power generation, has also been boosted by dry weather that has reduced power output from hydro plants.
Thermal coal usage normally peaks in winter for heating, then falls away until demand picks up during the hottest months of July and August, but warmer weather has already pushed up demand for airconditioning in recent weeks.
“There has been some concern that prices will continue to fall, but the heat wave has stopped prices falling further,” said a Singapore-based coal trader.
The most-active thermal coal futures contract hit a record 566 yuan a tonne in early April but slipped about 11 percent over five weeks until higher temperatures in Beijing re-ignited power demand and propped up prices.
High domestic coal stocks had helped spur the bearish sentiment, with some traders forecasting that prices could retreat to the 420 yuan to 450 yuan a tonne area where prices started the year.
But with Beijing set for a lengthy hot spell, and Shanghai, Hangzhou, Wuhan and Changsha also set to have a hotter-than-usual June, traders are starting to revise their views.
“Temperature is very crucial this year. We are following the weather more closely this year because the forecast for June temperatures is higher than the actual of the previous year,” a senior official with China’s top utilities group Huaneng said.
The sentiment shift has been compounded by low hydro power production, which has fallen 4.5 percent for the first four months of 2017 to 268.4 billion kilowatt hours on low reservoir levels, data showed.
However, traders and analysts said prices were unlikely rise in coming weeks, with utilization rates lower than last year due to overcapacity, and with large coal stocks at the country’s ports.
Coal-fired power stations had built an average 30 days of coal stocks by late May, Zhang Xioajin, a Hefei-based analyst with Everbright Futures said.
“Prices will continue to fall until late June,” added Zhang Xiaojin, an analyst with Everbright Futures said. “The stocks level has not pointed to a revival in prices yet.”
Source: ReutersPrevious Next