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Chinese Coal Futures Spike On Shortage Concerns

Prices of coal futures in China hit the highest since they were launched three years ago on growing worry about shortages of the fuel as peak winter energy demand continues to be strong, especially in the northern parts of the country.

Reuters reports that today, coal futures reached US$107.49 (679.8 yuan) per metric ton, up more than 1 percent from the Friday close.

Last week, four local utilities warned Beijing in a letter that new heating and electricity shortages were looming over parts of China due to the combination of cold weather and insufficient coal supplies. In the letter, the utilities ask the government to take steps to increase the supply of coal and put a lid on fast-rising prices.

“If the coal inventories don’t rise to a reasonable level by Spring Festival, then it will be really difficult to deal with the drop in temperatures in some key regions and in the winter heating regions,” the companies said.

The situation is dire enough in some parts of the country that there are only supplies for two or three days. At the same time, thermal coal futures have risen by 11 percent since the start of the year, Reuters notes, and so have rail transport costs, aggravating the situation.

One analyst, from Haitong Futures, told Reuters that “The price rally is being driven by blizzard weather across the country, which has blocked highways and even rail transportation in some places and boosted demand for heating.” Xu Bo added, “It is hard to ease tight coal supply in a short period since China is currently at its peak period for heating.”

The 11 percent increase in thermal coal futures is an extension of a rally that began last year, despite Beijing’s efforts to reduce its coal consumption and replace the dirtiest fossil fuel with gas.

By Irina Slav for Oilprice.com

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