China Coal Prices Soar To Record As Winter Freeze Spreads Cross The Country

One week ago we discussed why the "Worst case" scenario for China's property crisis is gradually emerging; to this we can now add that China's worst case energy crisis scenario is also about to be unleashed as cold weather swept into much of the country and power plants scrambled to stock up on coal, sending prices of the fuel to record highs.

On Friday, the most-active January Zhengzhou thermal coal futures closed at a record high of 2,226 per tonne early.

China's three northeastern provinces of Jilin, Heilongjiang and Liaoning - also among the worst hit by the power shortages last month - as well as several regions in northern China including Inner Mongolia and Gansu have started winter heating, which is mainly fuelled by coal, to cope with the colder-than-normal weather.

Even though Beijing has taken a slew of measures to contain coal price rises including raising domestic coal output and cutting power to power-hungry industries and some factories during periods of peak demand, so far all measures have failed with coal surging by 40% in just the past three days.

The power shortages are expected to continue into early next year, with analysts and traders forecasting a 12% drop in industrial power consumption in the fourth quarter as coal supplies fall short and local governments give priority to residential users.

Earlier this week, we reported that China undertook its boldest step in a decades-long power sector reform when it allowed coal-fired power prices to fluctuate by up to 20% from base levels from Oct. 15, enabling power plants to pass on more of the high costs of generation to commercial and industrial end-users.

The latest Chinese "Data" on Thursday showed factory-gate inflation in September hit a record high; but since thermal coal is the one commodity that correlates the closest to PPI, absent a sharp drop in coal prices in the next few weeks, expect the next PPI print to be far higher.
 

https://www.zerohedge.com/markets/china-coal-prices-soar-record-winter-freeze-spreads-cross-country