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Coal Prices Up 30% On Shuttered Chinese Mines

Mining truck

Despite grim outlooks and U.S.-led global efforts to reduce dependence on fossil fuels, the coal industry is experiencing an unexpected but welcome windfall with prices for the commodity soaring more than 30 percent in the last four months.

Paradoxically, China — one of coal’s most recent and active enemies, but also its main producer and consumer — has been the main force behind the price surge. In the last seven months, Beijing has been shutting down mines and forcing production cutbacks to curb oversupply and air pollution issues. The government has also halted the approval of new coal mines until at least 2019, eliminated about 560 million tonnes of coal production capacity and closed 7,250 coal mines in the last five years.

The measures have sent production tumbling 14 percent to 809.3 million tonnes in the second quarter of this year, according to the Australia and New Zealand Banking Group data, quoted byWSJ.com. Official data show imports rising 17 percent year-over-year to just under 60 million tonnes in the same period.

Benchmark prices for thermal coal in both Asia and Europe have risen by more than a third since April, while the price of steelmaking coal is up 20 percent since May.

The restrictions have also sent China’s coal output numbers nose-diving. On Monday, the National Development and Reform Commission (NDRC) said coal production fell 9.7 percent year on year to reach 1.63 billion tonnes in the first half of 2016, widening from a 5.8 percent drop recorded in the same period last year, Xinhua reported.

Globally, thermal coal production has been decreasing for over a year as the collapse in prices has forced companies to place new projects and expansions plans in the backburner.

More recently, heavy rainfall hit supplies from Indonesia, the world’s biggest coal exporter, deepening the impact of China’s measures. A weaker US dollar and the oil price, which has almost doubled from its January low, have also contributed to coal’s recovery. Related: Surprise Natural Gas Drawdown Signals Higher Prices Ahead

Benchmark prices for thermal coal in both Asia and Europe have risen by more than a third since April, while the price of steelmaking coal is up 20 percent since May. However, they still remain far from their 2011 highs of $140 and $160 per tonne respectively.

Beyond this summer’s rebound, analysts from Wood Mackenzie, Morgan Stanley and Macquarie, among others, insist that coal’s long-term grim future remains unchanged with prices set to remain low as consumption keeps falling.

China’s coal use dropped 3.7 percent in 2015, and 2.9 percent the previous year, according to data from the country’s National Bureau of Statistics (NBS). For some, such as Lord Nicholas Stern, a climate economist at the London School of Economics, the sustained decline indicates that China’s coal use has already peaked. In a paper published earlier this year in the Nature Geoscience journal, he argues that, as a result, the country’s total carbon emissions will start falling before 2025, well ahead of its official target date of 2030.

As coal use declines, clean electricity in China is increasing rapidly with solar power up 28 percent in the first half of 2016, nuclear up 25 percent and wind and hydropower both up 13 percent. But challenges remain, including connecting new windfarms to the grid. China’s Renewable Energy Industries Association says that 15 percent of the wind power produced in the country in 2015 was wasted.

By Cecilia Jamasmie via Mining.com

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