China’s ‘blue sky’ efforts may ease energy crunch and coal rally

Shanghai, China. Stock image.

Efforts by China to control air pollution by reining in industrial output could help ease an energy crunch and tame a bull run in thermal coal, according to the China Coal Transport and Distribution Association.

Thermal coal has rallied as Covid-19 lockdowns have disrupted the transportation of supplies. But the runup may lose steam as more industries start rationing output next month under Beijing’s “blue sky” campaigns, said Han Lei, a CCTD coal analyst on a Wednesday webcast.

“We may see thermal prices reach a turning point in December,” said Han, as curtailed industrial output lowers demand for the fuel.

President Xi Jinping has made cleaning up the environment a priority since he came to power in 2013. That’s included advancing Beijing’s Blue Sky effort, which implements measures to cut pollution, including curbing industrial production, in the most hazy days of winter.

Cement factories in the northern industrial hub Hebei are scheduled for a five-month rationing of output, according to state-own Securities Times.

Han said high thermal coal prices have weighed on steelmakers already suffering extended profit losses due to the housing slump. “If users can’t afford such high prices, the rally is unsustainable,” he said.

Spot prices for coal in Qinhuangdao have breached government-mandated price caps, rising to 1,558 yuan ($216) per ton on Oct. 17, Morgan Stanley analysts including Sara Chan wrote in a note Tuesday. Local officials in key mining hubs have sent warnings to crack down on price spikes.

CCTD predicts prices will test a seasonal high level of 2,000 yuan if transport disruptions last until November. Hauling coal eastwards from the coal fields of the interior to thousands of power plants in the coastal population hubs is key to Xi’s efforts to prioritize energy security.

But the pinch on coal supplies is unlikely to trigger shortages, given the country’s intense push to boost inventories ahead of the winter.

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