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China’s Faltering Economic Recovery Puts Coal Prices Under Pressure

If anyone expected China’s post-pandemic recovery to be a smooth upward curve, they must be very disappointed right now. The country’s return to business as usual has proven to be more uneven than many bet on, with even coal demand affected by that unevenness.

Bloomberg reported this week that a weak real estate market and still sub-par industrial activity are affecting coal demand. Heavy coal users such as steel mills and cement makers are asking for price discounts to cover their losses from lower demand for their products and that’s happening while supply of coal is also tightening.

Earlier this month, China halted operations at 32 coal mines following a deadly incident in February, when a landslide left 52 dead or missing. This means that some 50 million tons in existing and planned production capacity have been shut in.

China, which boasts the highest wind and solar power generation capacity, is also the biggest consumer of coal and has no immediate plans to change this state of affairs. The country’s government has made it clear that energy security is the top priority, above emission reduction, and that coal is an essential element of that security.

In an ironic twist, German climate envoy Jennifer Morgan tried to make an argument that coal is not the answer for China in an interview with the South China Morning Post. At the same time, Germany was expanding a coal mine to offset the loss of its last nuclear generation capacity.

Last year, China approved the highest number of new coal plants since 2015 despite its still-growing wind and soar capacity. Coal power plant construction starts in 2022 topped new construction starts in the rest of the world combined, NGO Centre for Research on Energy and Clean Air said in a report earlier this year.

By Charles Kennedy for Oilprice.com

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