It is reported that China may be the world's largest producer of coal for power generation, but as the world's largest consumer, the proportion that it imports is still arguably the single biggest driver of global prices.
According to a recent Reuters article, China often faces power shortages in the middle of winter and middle of summer, respectfully, when heating and cooling demands are at their highest; but this year, power shortages have started two months early and look to be the worse yet.
The blame falls largely on the shoulders of Beijing. For years, they have controlled the price at which generators can sell electricity in the market, which worked relatively well when domestic demand could be met by domestic coal supply at a reasonable price, but the cost of coal production has risen, in part because coal mines and coal consumption are geographically some way apart.
Imports can make up the difference, and are largely met by Australia and Indonesia. But as imports have risen, this demand has impacted the global coal market, driving up the price such that generators are caught between a capped sales market for power and a rising raw material cost based on global coal prices. Imports have been strong for much of 2009-10 as this graph from HSBC shows, but the tide could be turning this year.
According to a recent Reuters article, China often faces power shortages in the middle of winter and middle of summer, respectfully, when heating and cooling demands are at their highest; but this year, power shortages have started two months early and look to be the worse yet.
The blame falls largely on the shoulders of Beijing. For years, they have controlled the price at which generators can sell electricity in the market, which worked relatively well when domestic demand could be met by domestic coal supply at a reasonable price, but the cost of coal production has risen, in part because coal mines and coal consumption are geographically some way apart.
Imports can make up the difference, and are largely met by Australia and Indonesia. But as imports have risen, this demand has impacted the global coal market, driving up the price such that generators are caught between a capped sales market for power and a rising raw material cost based on global coal prices. Imports have been strong for much of 2009-10 as this graph from HSBC shows, but the tide could be turning this year.
(sourced agmetalminer)
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