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Coal Is Bucking Trade War Fears As China's Demand Surges - Capital Street FX

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    • Coal Is Bucking Trade War Fears As China’s Demand Surges
12-Jul
23:55 IST

Other than China, demand from Japan and emerging regions in Southeast Asia has also supported coal prices. That’s come as supplies have tightened due to fervent campaigning from environmentalists that has dried up funding and investment in the sector.

The Commodities sector has been hit by escalating trade tension between Washington and Beijing, but coal is bucking that trend as China’s demand for the fossil fuel remains high.

Benchmark Australian thermal coal prices have risen 40 percent this year so far, breaking through $120 per metric ton for the first time since 2012. “We think the jump in the coal price has been a response to an unusually hot summer in China and solid economic growth in the first half of the year,” said Caroline Bain, chief commodities economist at consultancy, Capital Economics.

A hotter-than-usual summer drives up demand for air-conditioning. The heatwave also dried up water reservoirs, hitting hydroelectricity power output. Hydro power is a major source of renewable energy in China.

Contributing to the supply crunch is a broad decline in domestic coal production in recent years due to the China’s attempts to clean up its environment.

All those factors contribute to greater demand for coal imports. China’s key coal supplier is Australia, but the U.S. also exports the fuel source to Asia’s largest economy. American coal exports to China doubled from 2016 to 2017, but the fossil fuel is set to be subject to a 25 percent tariff  beginning at an inspecified data.

Coal’s strength contrasts with declines of more than 8 percent in the S&P GSCI industrial metals and agriculture indexes that were due to a combination of fears of a global trade war and a softer Chinese economy, Bain noted.

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