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China’s coal-fired power companies struggle amid high prices

Thursday, July 29th, 2021

China’s coal-fired power generators have seen profits evaporate amid surging domestic prices, with imports unable to provide much relief amid an ongoing unofficial ban on buying cargoes from major exporter Australia.

Out of 10 listed coal-fired power companies, four reported losses and five others saw first-half profits plunge, according to a report on Chinese energy industry website BJX News on July 27.

The only utility to post a rise in profits was Changyuan Electric, which benefited from its large portfolio of renewable energy, according to Refinitiv analyst Yan Qin.

The dramatic drop in profitability comes amid a surge in domestic thermal coal prices, with SteelHome data showing the benchmark price at Qinhuangdao in northern China ending at 1,009 yuan ($155.47) a tonne on Wednesday.

This was the highest price since the consultancy started collating data in December 2011, and it means that coal has more than doubled from a 467 yuan a tonne low in 2020, reached amid slumping power demand as China locked down much of its economy to combat the spread of the coronavirus pandemic.

It also means domestic coal prices are well above the unofficial government target zone of 500 to 570 yuan a tonne, a level believed to provide both miners and utilities with sufficient profits.

The rise in domestic coal prices can largely be put down to strong gains in electricity demand as the economy rebounds from the pandemic, and muted growth in coal output amid increased checks to boost safety.Total power demand rose in June to 703.3 billion kilowatt hours, up 9.8% from the same month in 2020, taking the gain in consumption to 16.2% in the first six months of the year.

However, domestic coal output dropped 5% in June from the year earlier month to 323.2 million tonnes, with production in the first half gaining 6.4% to 1.95 billion tonnes.

CHINA IMPORTS

Imports have been rising, with June’s 28.4 million tonnes being the most so far in 2021, up 35% from May and 12.3% from June last year, according to official data.

However, for the first six months of this year, China imported a total of 139.56 million tonnes of coal, down 19.7% year-on-year, according to the data.

One of the factors driving lower coal imports has been Beijing’s unofficial ban on buying from Australia, the world’s second-biggest shipper of thermal coal, amid an ongoing dispute with over a variety of issues, including Canberra’s call for an international investigation into the origins of the coronavirus.China’s imports from Australia, which used to be its second-largest supplier, have dropped to virtually zero, with only a handful of cargoes being offloaded in recent months, according to commodity analysts Kpler.

The unofficial ban was enacted around the middle of last year, and China’s imports from Australia dropped from 9.65 million tonnes in June 2020 to just 435,559 tonnes in June this year, according to Kpler.

China has tried to get around its ban on Australia by importing more from Indonesia, the biggest exporter of thermal coal, as well as from Russia, the United States and even South Africa, which hasn’t been a traditional shipper to China.

China’s imports from Indonesia rose from 11.77 million tonnes in June 2020 to 18.28 million in June 2021, according to Kpler.

Those from Russia increased to 5.33 million tonnes in June this year from 3.78 million in the same month last year, while imports from the United States were 1.56 million in June, up from 572,000 in the same month in 2020.

But China is paying a heavy cost for shunning Australian coal, with the price of Indonesian coal surging.Indonesian coal with an energy rating of 4,200 kilocalories per kilogram (kcal/kg), as assessed by commodity price reporting agency Argus, hit a record high of $67.90 a tonne in the week to July 23.

The grade has leapt 200% from its 2020 low of $22.63 a tonne in September.

Other seaborne coal prices in Asia have also increased amid strong demand from buyers such as Japan, South Korea and Taiwan.

However, they prefer higher-grade Australian coal, such as the Newcastle 6,000 kcal/kg, which has seen its index surge to $151.20 a tonne in the week to July 23, up 226% since its 2020 low in September.

However, the main type of thermal coal China used to buy from Australia, with an energy value of 5,500 kcal/kg hasn’t done quite as well, rising to $92.55 a tonne in the week to July 23, up 164% from its 2020 low of $35.04 in early September.

Australian exporters of 5,500 kcal/kg coal have largely been successful in switching from China to India, but have most likely had to accept lower prices in order to entice Indian utilities to buy.

Editing by Richard Pullin

https://www.reuters.com/article/us-column-russell-coal-china/column-chinas-coal-fired-power-companies-struggle-amid-high-prices-australia-ban-russell-idUSKBN2EZ0DB?rpc=401&
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