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As much of the world approaches winter and natural gas prices hit record levels, global economies compete for a limited supply of coal. At the center of the struggle is China, which is short of stocks and demand is at an all-time high. The dirtiest fossil fuel, which has tried unsuccessfully to fight cleaner energy sources, is now making a comeback, making it difficult for international climate negotiations to start in just a few weeks.
China will increase coal purchases “at any cost to provide heating and electricity generation in the winter,” the China Electricity Council said in a statement on Monday. Although more than 90 percent. Domestic fuel is extracted right here in China, it would be difficult to increase local production in the short term.
European coal has risen in price to a 13-year high, while Australian Newcastle coal has more than tripled in recent years, reaching 2008 record levels. Chinese thermal coal futures on the Zhengzhou Commodity Exchange rose as much as 3.6 percent on Wednesday. and reached a daily record for the third consecutive session.
A few months ago, Chinese buyers were on the sidelines of the spot market, complaining that prices were too high and hearing that they could weather a storm with domestic stocks, traders with knowledge of the matter say. Now the same buyers are singing a different anthem as power plant operators are restless asking traders and importers to seek cargo abroad, sources say.
Meanwhile, coal use in Europe is projected to increase in the winter due to lower renewable energy production, record natural gas prices and the planned decommissioning of nuclear reactors. Many of India’s coal-fired power plants warn that stocks are coming to a dangerous end, with more than half of the country’s power plant reserves in less than a week. The country will need supplies from abroad to compensate for low domestic production, which will put further pressure on the already weak spot market.
“Asia doesn’t have enough carbon,” says Saad Rahim, chief economist at Trafigura Group’s main trading house.
Disagreements with Australia
China has traditionally bought almost all of its coal reserves from Asian producers, but that changed last year when it stopped buying from Australia in the wake of a political dispute between its once close trading partners. Disagreements between the parties led to sporadic deficiencies.
As an alternative, China has started to increase coal imports from some long-term European and South Asian suppliers. According to customs, the country has already imported 4.4 million tonnes from South Africa this year. tons of thermal and coking coal versus zero in 2015-2020. Imports from Russia, Europe’s main supplier, have doubled this year and deliveries from the United States have increased sevenfold.
At the time, Europe was trying to dismantle Asian shipments. Eastern European importers are buying coal from Australia, an unexpected move that illustrates just how desperately lacking, traders say.
Inventories in China’s six major energy groups fell 31.5 percent from a year earlier, hitting a seasonal low since Sept. 27, 2017. Morgan Stanley analysts, including Sarah Chan, wrote in the report. . “Declining inventories from independent power producers has rapidly increased demand for coal, causing carbon prices to rise during a seasonally weak period,” they said.
Stormy demand
Although China extracts half the world’s coal, its supply is no longer predictable after stormy demand. Thermal energy production in August was 14 percent. higher than last year, with a coal production of only 4.4%, largely due to safety measures introduced after a series of fatal accidents in the mines. Imports have increased by more than 20 percent since the beginning of June, but the country needs even more to fill the gap between supply and demand.
“Given the scarcity of carbon in the country, it is to be expected that China will start buying it more actively,” said Abhinav Gupta, dry cargo research analyst at Braemar ACM Shipbroking.
To make matters worse, the world’s coal reserves have declined as major producers, Colombia and Indonesia, have struggled with the rains and some mines in other countries have been closed due to the pandemic. Investment in new mining projects has come to a virtual halt in recent years, as banks cut loans to coal companies around the world to avoid the worst effects of climate change.
“We are seeing carbon shortages in some markets,” which began after the European energy crisis, Colombian Energy and Mining Minister Diego Mesa Puyo said in an interview. As a result of crises abroad, the Dominican Republic has faced problems with coal contracts and Colombia is trying to secure even part of that supply from its own mines, he added.
According to Ernie Thrasher, CEO of Xcoal Energy & Resources LLC, the lack of manpower makes it difficult to find new miners. Some of Xcoal’s current deliveries are delayed for two to four weeks as demand increases, although Thrasher described the disruptions as “fairly common.”
China’s ability to cope with the global supply crisis appears to be limited. Beijing could decide to lift the ban on Australian coal imports, although politically it would not be very pleasant. Or the government could decide to limit supplies to factories at the expense of economic growth.
“If you look at the Chinese, they have not been able to replenish their inventory within the restocking period,” Jan Dieleman, Cargill International’s maritime director, said earlier this month. “We see a very strong energy market that is expected to move a lot of coal in the coming winter.”
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