Few countries will escape higher energy prices following the invasion of Ukraine. But China is at least unlikely to suffer from disrupted coal supplies. New price controls announced this week to slow inflation are a sign of the country’s increasing reliance on the black stuff.
Russia is a large coal supplier to the world, exporting about 200mn metric tonnes a year. Europe is one of its biggest customers, led by Germany, Belgium and the Netherlands. The key Asian importers are Japan, Vietnam, Australia and Indonesia.
If customers respond to sanctions and political risk by shunning Russian coal, the leftover supply could mean more options for China. So far, it has not condemned Moscow, sidestepping questions over whether Russia’s attack is an invasion. That could help Beijing’s plans to control coal prices — a crucial goal. China has struggled with inflation and power outages in the past year.
China said this week it would limit the price of coal in its largest mining regions to control surging prices, setting the range for benchmark thermal coal at key mines between Rmb320 ($50) and Rmb570 ($90) a tonne.
The controls will cap prices significantly below the nationwide price cap of Rmb700 a tonne set earlier this month. That should mean a lasting reversal of the sector’s year-long rally, which had been fuelled by coal coming back into vogue to address electricity shortages. Shares of local mining company Yankuang Energy Group more than tripled in the past year.
Shares of local miners fell on Friday. The stocks included Yankuang, China Shenhua Energy and China Coal Energy. Other losers from the new policy are local energy-intensive industries such as steelmakers. These sectors should soon lose access to favourable electricity rates. Conversely, green energy stocks such as China Datang Corp Renewable Power and China Resources Power rose, in the expectation of higher demand for renewable energy.
China is once again increasing its dependence on coal. But as the price caps bite, investors should move in the other directions.
