China’s coal futures set best week on record as energy crisis deepens

Chinese coal futures are on track for their biggest weekly rise on record, the latest sign of a worsening energy crisis that threatens to increase pressure on the country’s real estate developers as they are struggling with impending debt payments.

Thermal coal futures traded on the Zhengzhou Commodity Exchange rose more than 5% on Friday to 1,647 Rmb ($ 256) per tonne, taking them to over 30% in the last five sessions and scoring the most big weekly gain since the start of trading. in Zhengzhou in 2013.

Chinese coal futures have closed every trading day this week at a record high.

The rally comes amid a growing energy crisis in China, where coal-fired electricity accounts for around 70 percent of electricity production. A campaign to shut down coal mines and power plants for environmental and safety considerations, along with efforts by local governments to reduce electricity use to meet strict emissions targets, have combined to produce power shortages and blackouts across the country.

Coal prices continued to rise even as fuel imports rose and local authorities ordered mines to increase production this week, amid deadly flooding in critical coal-producing Shanxi province. , have seriously disrupted attempts to increase supply.

Analysts said the relentless rise in coal prices threatened to spill over into China’s other looming economic crisis: a liquidity shortage in the real estate sector following a missed payment by Evergrande, the real estate developer on most indebted in the world.

Beijing instituted electricity rationing that favors residential consumption over industrial use to minimize disruption to Chinese citizens. Limited energy resources for manufacturers are likely to increase the costs of building materials, including steel, glass and aluminum, which would further squeeze the margins of already struggling real estate developers.

According to Michelle Lam, senior Chinese economist at Société Générale, the rise in coal prices will “sharply” increase the costs faced by Chinese developers in the months to come. “If the developers are to complete construction, they will face higher material costs, which will increase the challenges in terms of profitability in the short term,” she said.

Chinese industrial costs are already on the rise, with ex-factory prices surging 10.7% last month, the fastest pace since 1995. The country’s producer price index, which includes raw material costs sold to companies, climbed this year following the recovery in commodity prices.

Larry Hu, chief economist for China at Macquarie Capital, noted that while rising oil prices pushed the price index up earlier this year, it is now responding to rising coal prices. The portion of the index that captures producer prices for coal rose 75 percent year-on-year in September.

The combined impact of the energy crisis and the housing debt crisis is expected to have weighed on China’s economic growth in the third quarter, which will be released on Monday. Goldman Sachs analysts predicted that production had not increased from the previous quarter and expressed “considerable uncertainty” about the outlook for the fourth quarter.

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