2023-10-26 Bloomberg

Chinese coal prices are falling as winter nears, offering relief to power plants that buy the fuel and reducing the chances of another round of debilitating power crunches.

Record domestic production and imports, and an increasing contribution from renewables, have put the country in a much better place to weather rising consumption during the peak demand period for heating. Persistently strong coal inventories and a recovery in hydropower generation have helped eliminate the key factors behind last year’s crippling surge in prices.

Ample supply of China’s mainstay fuel is good news for industry as the economy improves after months of poor performance. Electricity generators are also benefiting from weaker prices. Huaneng Power International Co., China’s second-largest supplier, reversed last year’s loss to post its best-ever third quarter profit as margins improved, according to its earnings report this week. By contrast, coal mining profits are declining.

Power plants have now largely completed replenishing stockpiles ahead of winter and benchmark prices have dropped below 1,000 yuan a ton, according to the China Coal Transport and Distribution Association. The downtrend could last for another month.

“There’s no pressure to buy more until the weather gets colder, likely in late November,” Miao Najue, an analyst at the association, told a briefing on Wednesday. That’s likely to curb imports in the final two months of the year as well, he said.

Meanwhile, water levels at the Three Gorges Dam, the world’s largest hydro project, are at their highest level as the rainy season in the south feeds the mighty Yangtze River, said Miao.

The China Electricity Council foresees a “generally balanced” power market in the winter, with periodic shortages met by power transfers across regions, according to a report on Wednesday.