The price of thermal coal in China has increased for 11 consecutive weeks, reaching its highest level in three years. This price increase is due to a decrease in domestic production and a reduction in imports from the largest coal exporter, Indonesia.
Price Increases and Contributing Factors
The price of thermal coal at the port of Qinhuangdao, which is recognized as the benchmark for Chinese prices, reached 986 yuan ($147) per ton for the week ending on Monday. Coal prices in the world's largest coal consumer, which still relies on this fuel for nearly 50% of its electricity production, have increased by 24% since mid-July. This price increase has been caused by supply constraints and high demand.
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Impact of Recent Incidents and Government Policies
Thermal coal prices in China have been rising since early spring, when the worst mining disaster in 16 years occurred in May, forcing officials to increase safety inspections and suspend operations at several mines in the key coal-producing region of Shanxi. However, Chinese officials have not set a limit on the growth of coal-fired electricity production in the new five-year energy plan and emphasize this fuel as a "last line of defense" for the power supply system alongside increasing the share of renewable energy.
China's coal production has decreased this year compared to last year, while Indonesia's thermal coal exports have declined due to government production quotas and uncertainties in the country's mining and coal export policies. So far this year, China's imports from Indonesia have decreased by about a quarter compared to last year, as the Indonesian government has reduced production quotas for coal mines and the El Niño phenomenon has led to reduced rainfall and lower river water levels.
In response to the decrease in domestic production and imports from Indonesia, the Chinese government early this month asked local mines to maintain production rates. Chinese officials are trying to increase coal production ahead of the winter season, when coal is expected to play a larger role in stabilizing electricity production.
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