Chinese coal prices rise to a three-year high

Chinese coal prices surged to a three-year peak on October 12th, reaching 1,004 yuan ($150) per ton for the first time since 2020, according to the China Coal Transportation and Distribution Association. This represents a 25% increase from mid-July. Despite the growth of renewable energy, coal still powers roughly half of China's electricity generation.

However, domestic coal production is declining, with a 3% decrease from the beginning of the year to August compared to the same period last year. This decline is due to tighter safety measures following a deadly coal mine collapse in Shanxi province in May, and slower-than-expected approval processes for mine resumption. Additionally, China's vital coal railway is undergoing maintenance until October 26th, further limiting transportation and contributing to high prices.

International coal supplies have also decreased in Indonesia, the primary supplier to China, due to production cuts aimed at raising prices and government revenue. The El Niño phenomenon has exacerbated the situation by causing droughts, lowering water levels in rivers in key mining areas and reducing shipping capacity. With winter demand for coal expected to rise, the combination of limited supply, increased demand, and higher prices for alternative fuels like LNG is putting pressure on China's energy costs.