As temperatures soar, China coal traders bet on shortages futures 2018-05-17 08:37:00

China's thermal coal futures rose to a six-week high on May 16 as traders bet on a supply crunch as lower hydro power output and forecasts of a summer heat wave spurred expectations of rising demand for the nation's most-consumed fuel source.

The most-active futures, for September delivery, on the Zhengzhou Commodity Exchange rose by as much as 1.9% to 643 yuan/t ($100.98/t) on May 16, their highest since February 28. They have rallied 16% since mid-April.

Demand has risen as coal-fired power plants will need to shore up inventory over the coming weeks as households in the southern provinces of Anhui and Fujian and in major cities like Beijing and Shanghai crank up air conditioners due to warmer-than-usual spring temperatures.

"Tightness in the coal market is coming back. In northern China, anti-pollution campaign has curbed production and shortages have emerged in parts of southern China," a Zhengzhou-based thermal coal futures trader said.

Demand across Asia, including China, has also boosted the price for coal from Australia's Newcastle port, the regional benchmark, to over $105/t, the highest in five years for this time of year.

Temperatures in the city of Fuzhou in Fujian province and Shanghai rose to a higher-than-normal 37 degrees Celsius (98.6 degrees Fahrenheit) this week.

Weather data on Thomson Reuters Eikon forecasts China's largest cities, Beijing and Shanghai, will experience a hotter-than-usual summer this year.

Reflecting the jump in bullish bets, open interest, a measure of liquidity, has risen since mid-April to over 402,292 lots, equivalent to 40.2 million tonnes of coal, on May 14, the highest since February 5.

Higher coal prices would crimp profits at China's utilities that have already struggled with rising prices over the past two years as government-enforced mining cuts have limited supply.

Rising coal demand runs counter to Beijing's long-stated aim to boost renewable power consumption to reduce air pollution.

(Writing by Jessie Jia  Editing by Harry Huo)
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