After China-induced price spike, coal set to resume long-term decline – by Nina Chestney and Henning Gloystein (Reuters U.S. – July 24, 2017)

LONDON/SINGAPORE (Reuters) – Coal prices’ march to eight-month highs, driven by China’s huge appetite for power consumption, looks like an interlude in a longer-term decline and is seen losing traction later this year.

Investors widely anticipate a slow demise for coal use due to policies encouraging cleaner natural gas and renewable energy generation, but the shorter-term outlook for the industry has seen a sharp reversal of fortunes.

Asia’s benchmark physical coal prices GCLNWCPFBMc1 have gained more than a third from lows seen in May to nearly $98 per ton, while European benchmark API2 2018 coal futures are at eight-month highs of around $74 a ton. Recent gains are largely due to high demand in China, where power consumption has jumped more than 6 percent since the beginning of the year.

This month, torrential rains forced China to cut capacity by as much as two thirds at its Three Gorges and Gezhouba hydropower plants in an effort to ease pressure on the Yangtze river, forcing utilities to switch to coal. Three Gorges is by far the world’s biggest power station, with an installed generation capacity of 22.5 gigawatts – equivalent to around 20 coal-fired power plants.

Heatwaves in the north also boosted air-conditioning demand, while coal mining and shipping were hampered due to adverse weather in Indonesia and South Africa. Production in Australia was disrupted by a strike. Many of these conditions should ease next month, however.

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