The restrictions imposed in China to help contain the spread of the coronavirus are pushing up the price of coal and constraining the fuel’s supply. Coal traders show that spot prices for 5,500kcal thermal coal had increased by 9% in October, hitting a seven-month high of 1,650 yuan per ton.
Data from the National Health Commission shows that top coal-producing regions in the country have recorded hundreds of coronavirus cases, which has disrupted coal trade. The introduction of strict measures has even made it hard for some mines to ship the fuel out, which has caused production to stall. This comes just a few weeks before demand in the country increases as more people switch to using coal-fired heating systems for the winter.
China is the largest consumer of coal and relies on this fuel to heat homes, especially in the northern region. The East Asian nation is determined to ensure that it has adequate suppliers after shortages in 2021 caused power outages. The measures imposed include special licenses for lorries to enter mines. Drivers are also not permitted to leave their cabs during the shipment journeys, which usually cover thousands of kilometers.
Authorities also ordered residents in Zhungeer county to stay home after one coronavirus case was reported at a mine. This county contributes about 27% of coal produced in Inner Mongolia. One coal trader based in Zhungeer stated that mines had been forced to reduce their operations or even shut down if they couldn’t find lorries to transport their coal.
Mines have been shutting down for a while now, with two mines in the city of Wuhan suspending production about a fortnight ago.
Zhou Jie, a CCTD analyst, states that the impact of reduced coal production has slightly been offset by the fact that utilities haven’t yet increased their winter purchases. Data from CCTD also shows that the daily use of coal at major power plants along the coastal region has also dropped to less than 1.8 million tons, from its previous use of more than 2 million tons.
Data from another consultancy firm, Sxcoal, also shows that the number of vessels waiting to load coal from ports in China is roughly 80 a day. This figure is nearly 25% less than the figure recorded during the same period in 2021.
Traders are becoming more concerned that an outbreak may affect markets soon, especially once the heating season in northern China begins.
Such disruptions as seen in China are responsible for the additional demand that enterprises such as Arch Resource Partners L.P. (NASDAQ: ARLP) are seeing, resulting in rising coal prices around the world as supply is dwarfed by demand.
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