Coal news and updates

Coal, a high-profile villain in smog-choked northern Chinese cities this winter, enjoyed a bit of market comeback in 2016 as its price recovered from a long slump. The gains may extend into the new year, albeit authorities are reluctant to see that happen.

As a core part of China’s supply-side reform to trim overcapacity, the performance of coal in the past year has created complexities. The conundrums are that although China has taken efforts, the industrial structure has not been ready to follow.

The benchmark Bohai-Rim Steaming Coal Price Index surged to a two-and-half-year high of 607 yuan (US$87) per ton in early November. Futures for coking coal used in steel production doubled to 1,177 yuan a ton over the past year.

Underlying the gains has been the government’s policy of curtailing supply by closing smaller, dangerous or inefficient mines. The National Development Reform Commission oversaw a reduction in total output of more than 250 million tons of coal last year, as of mid-December.

Although coal gets a black eye for the damage caused by its burning to the environment, it remains cheap and plentiful, crucial to electricity generation, heating and steelmaking.

“It even boosted several related industries when its price surged,” said Jiang Mingde, chief economist at Hengtai Futures Co.

‘Unexpected’ source of profit

Due largely to rising coal prices, industrial raw materials such as steel and nonferrous metal also surged, contributing to the overall profit growth.

China’s industrial profits posted an annual growth of 9.4 percent over the first 11 months last year, 67.9 percent of which was “contributed by the commodity price rebound,” the National Bureau of Statistics said.

Despite the growth, authorities seemed unwilling to admit coal price’s contribution, as officials at the development commission said the surge was “unexpected” and “beyond normal.”

They do have a point as high coal prices increased costs and hit profits for downstream producers such as electricity plants.

While the price rebound boosted the profits of coal companies — which over the first 11 months jumped 156 percent from a year earlier — “it hurt the thermal power plants,” said Zhang Lin, vice director at the China Electricity Council.

In September the major five electricity groups posted losses totaling 300 million yuan, compared with a 6.4 billion yuan profit in the same period in 2015. In October, that loss deepened into 2.6 billion yuan.

But why does coal matter so much if its production and use are expected to fall?

Just last month, the development commission announced the 13th Five-year Plan for energy, which pledges 15 percent of the nation’s power should be generated from renewable resources by 2020, up from the 12 percent at the end of 2015. And the proportion of thermal power should be suppressed to below 55 percent, from 75 percent now, by the end of the plan.

But the reality is not so much optimistic as alarming, with electricity giants’ massive losses.

In November, four of five major power groups — China Huaneng Group, China Huadian Corp, China Datang Corp and China Guodian Corp — submitted a joint letter to the government of Shaanxi province, the country’s major coal source, asking it to impose higher electricity fees on domestic users as “steaming coal prices have exceeded power plants’ cost.”

Although electricity companies have boosted the use of renewable energy, thermal power still accounts for the bulk of output.

Although thermal power overall contributes 75 percent to electricity generation, the level is as high as 90 percent in the north, which is frequently clouded by heavy smog and haze.

China’s efforts to change

Hasn’t China taken efforts to correct such problem?

Yes, given the output of wind, solar, and nuclear energy has continuously surged. But the effects haven’t met expectations.

To capitalize on the rise in production, the central government says improving the transmission and distribution network is pivotal to increasing consumption. The “leakage” of energy is making new energy producers hesitant, despite government subsidies. The National Energy Administration says an average 19 percent of wind energy, for example, wasted in transmission because distribution channels haven’t reached enough areas in need of power.

Even if “dirty” coal is becoming somewhat of a pariah as nations around the world move increasingly to renewable energy, it remains indispensable as it is relatively cheap and easier to use.

China will invest another 2.5 trillion yuan by 2020 to boost renewable energy generation, however, “most energy companies still rely heavily on thermal power given its cheaper running costs,” Liang Dunshi, deputy secretary at the China Coal Transportation and Distribution Association, said.

SOurce: Hellinic Shipping News