China Coal Futures Surge to Record as Floods Swamp Mining Hub

(Bloomberg) — Heavy rains and flooding expanded mine shutdowns in China’s biggest coal producing region, sending prices to a record and hindering efforts by Beijing to boost energy supplies for winter.

Floods have closed 60 of the 682 coal mines in Shanxi province, a region that has produced 30% of China’s supply of the fuel this year, adding to a worsening energy crisis that threatens the country’s economic growth. Thermal coal futures surged to a new intraday record after trading opened Monday.

The mine outages are complicating China’s efforts to boost coal output and ensure power supplies for the winter heating season. The powerful State Council on Friday said it will allow higher electricity prices in a bid to boost generation amid the rising costs.

The council also said it would gradually allow all coal-fired power to be traded in the market instead of being subject to regulated prices, and promoted increasing capacity in qualified coal mines. China’s government has asked miners to spare no costs in boosting coal supplies, and has given them permission to operate at full capacity even after hitting their annual quotas.

Even with the efforts, China could face a coal supply gap of 30 million to 40 million tons in the fourth quarter, Citic Securities analyst said in an Oct. 8 report. A shortage of the fuel could cut industrial power use by 10% to 15% in November and December, which would potentially translate into a 30% slowdown in activity in the most energy-intensive sectors like steel, chemicals and cement-making, according to UBS Group AG.

Coal futures on the Zhengzhou Commodity Exchange rose as much as 11.6% Monday to 1,408.2 yuan ($218.54) a ton, a new intraday record for the most-active contract.

The power grid may face some relief in the near term, as hot weather in cities including Shanghai and Nanjing is supposed to cool off, with temperatures dropping from about 30 degrees Celsius to 20, according to the China Public Meteorological Service Center.

Still, the cool wave could be an omen for lower temperatures boosting heating demand during the winter. The China Meteorological Administration is predicting a La Nina weather pattern between October and December, which may bring more frequent and stronger cold waves.

Meanwhile the heavy rain in Shanxi continues. More than 120,000 people have been evacuated, Xinhua reported Sunday, with 190,000 hectares of crops damaged and 17,000 houses collapsed.

Contact editor Michael Bellart (michaelbellart@caixin.com)

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