Coal Rises to Record in China as Floods Keep Supply Tight

(Bloomberg) -- A dramatic surge in coal prices in China is beginning to cool as top production hubs recover from the impact of floods, signaling a reprieve in the nation’s energy crisis.

Most coal mines shuttered as a result of heavy rainfall in northern China’s Shanxi province have now resumed operations, while output is improving in the neighboring Shaanxi hub. Daily production in Ordos, Inner Mongolia jumped to the highest rate this year in recent days, according to analysts at CCI. 

Coal futures on the Zhengzhou Commodity Exchange pared gains Wednesday after earlier rising about 9% to a new intraday record of 1,640 yuan ($254.30) a ton. The most-active contract, which jumped almost 20% in the previous two sessions, traded 5% higher at the midday trading break.

China’s coal shortage “may ease during October but the country still needs more supplies for December and January when the weather could be the coldest,” Bloomberg Intelligence analyst Michelle Leung said in a Tuesday note. Local mines have pledged to lift output and imports from suppliers including Indonesia will also likely rise, she said.

The squeeze on coal supply, along with high prices of the commodity and alternative fuels like natural gas, has prompted an energy crisis that’s seen power cuts at factories and industrial plants in most of the country. China mines and burns more than half the world’s supply, and the fuel accounts for more than 60% of the country’s electricity generation.

Even with production resuming from mines, power demand is expected to grow as China enters its winter heating season. Energy-intensive industries like steelmaking and chemical production could continue to face a slowdown through the rest of the year, according to UBS Group AG.

China also aims to lift coal imports from Mongolia, Premier Li Keqiang said Tuesday during a video meeting with the Mongolian Prime Minister Oyun-Erdene Luvsannamsrai. 

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