China’s Slumping Economy to Cut Coal Use Even as Output Swells

(Bloomberg) — China’s demand for thermal coal is likely to keep falling through the rest of the first half, as virus restrictions continue to mire the economy in a deep slump.

Alongside measures to boost output and build stockpiles, that’ll give China a better chance of satisfying peak power demand over the summer, when air-conditioning needs are at their height, and retaining enough of a buffer to keep industry supplied into the autumn. A shortage of coal in the fall of 2021 contributed to unprecedented blackouts during a peak production period for many industries, and some southern provinces have warned this year over the potential for more outages heading into the hotter months.

Consumption of China’s mainstay fuel is expected to decrease moderately over May and June after slumping steeply in April, the China Coal Transportation and Distribution Association said at a briefing on Wednesday, citing weaker industrial activity and the availability of more hydropower following heavy rains. Rising temperatures and the easing of lockdown measures in Shanghai should offer some support to the market, it said.

At the same time, output remains elevated as miners heed the government’s call to ensure energy security. CCTD expects production this month to reach nearly 360 million tons. While that’s slightly lower than April, it’s 10% higher than a year ago. It’s also likely to suppress demand for imports that have only gotten more expensive in the wake of Russia’s invasion of Ukraine.

Events Today

(All times Beijing unless shown otherwise.) 

  • USDA weekly crop export sales, 08:30 EST

Today’s Chart

The resurgent virus is hitting gas demand, too, with many LNG buyers canceling their terminal slots. BloombergNEF estimates that China’s imports in May have fallen 2 million tons from last year to 5.1 million tons as many traders stayed on the sidelines while Covid was spreading.

Capacity canceled this year at PipeChina’s LNG terminals, according to BNEF:

On The Wire

A logistically risky and costly transfer of crude between tankers at sea highlights the steps at least one Chinese buyer is willing to take to ensure the smooth flow of oil from eastern Russia to Asia.

Elon Musk wants to mine it, China is scouring Tibet for it, battery makers are crying out for it. Lithium, the wonder metal at the heart of the global shift to electric cars, is in a full-blown crisis.

China is stepping up efforts to salvage the residential property market as confidence is battered by lockdowns. The government is digging deep deep into its policy playbook, but the old moves aren’t likely to work this time. 

China’s economy is in some respects faring worse than in 2020 when the pandemic first emerged, Premier Li Keqiang said, urging efforts to reduce a soaring unemployment rate.

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The Week Ahead

Friday, May 27

  • China industrial profits for April, 09:30
  • China weekly iron ore port stockpiles
  • Shanghai exchange weekly commodities inventory, ~15:30

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