Heavy Rain in Shanxi Forces 60 Mines to Suspend Operation; Steam Coal Surges in Prices for Two Consecutive Days and Shows no Signs of Stoppage

The incessant heavy rain and flood in China recently has resulted in successive shutdowns of a partial number of production areas in the “coal province” Shanxi, and the price of steam coal has surged for two consecutive days in China, arriving at RMB 1653.8/ton, with an increase of 11.01%.

According to the coverage of Bloomberg News, Shanxi is the largest production region of coal for China, and occupies 30% of the nationwide coal production volume. 60 among the 628 coal mines in the province were forced to shut down due to the flood, which aggravated the exacerbating energy crisis of the country and threatens its economic growth.

The steam coal futures had risen by 7% at the Zhengzhou Commodity Exchange to RMB 1,507/ton on Tuesday, and then surged by 12% on Monday (11^th).

Steam coal futures have been rising since August 17^th from RMB 750/ton to over RMB 1,000/ton, before exceeding RMB 1,600/ton over the past two days, which equals an increase of 86% in less than two months.

▲Chinese steam coals have been rising for two consecutive days. (Source: Sina Finance)

Hong Hao, head of research and chief strategist at Bank of Communications, pointed out that a lot of people have neglected the impact introduced by the extreme climate and flood in Shanxi amidst the historical high steam coal futures.

The suspension of coal mines has elevated the difficulties in realizing China’s targets of increasing coal production and ensuring unimpeded supply of electricity during wintertime. The State Council finalized on the 8^th to adjust the floating range of electricity transaction prices in the market that was 10% and 15% respectively to no more than 20% in principle, with categorization and regulation implemented, where the electricity prices for industries of high energy consumption can be formed by market transactions without being confined by the 20% increase.

CITIC Securities analysts believe that China may still encounter a coal supply void of 30 to 40 million tons during the fourth quarter despite efforts from the Chinese government. UBS Group AG commented that fuel shortages are likely to reduce 10-15% of industrial power consumption between November and December, which will accelerate 30% of the activities from energy-intensive industries, such as steel, chemical engineering, and cement manufacturing.

 (Cover photo source: Flickr/Nenad Stojkovic CC BY 2.0)