Cheap Chinese coal is making it difficult to reduce consumption

Chinese coal prices are on course to close out 2025 with a whimper rather than a bang, ahead of a critical year in the government’s mission to meet its climate targets.

Even after a couple of sluggish months, coal output is still tracking for another record this year. Prices that briefly nosed above 700 yuan (S$126) a tonne in August, when air-conditioning demand is usually at its height, have since subsided and are likely to stay stuck until at least the winter.

President Xi Jinping has pledged that coal use will start falling in 2026, when the country’s next five-year plan is released, a crucial step in making sure carbon emissions peak before the end of the decade. But the weakness in prices is complicating Beijing’s efforts to engineer a drop in the use of China’s mainstay fuel.

China Shenhua Energy, the country’s biggest miner, has said that it expects even less volatility in the second half of the year. That’s a far cry from the coal shortages that prompted price spikes and blackouts earlier this decade. It also begs the question, in a world beset by energy insecurity and soaring power bills, why China would want to surrender the advantages that cheap coal brings.

The authorities’ hard-won grip on supply has left them relatively more sanguine than in recent years when it comes to assessing threats from surges in demand.

For one, overseas purchases can plug any gaps if the government persists with its campaign against overproduction that helped depress output last month. Although the slide in imports has been marked this year, it was noticeable they jumped 20 per cent in August versus the prior month to offset the impact of heavy rains and mining curbs, HSBC Holdings said in a note last week.

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Then there’s the dramatic upswing in solar and wind penetration. Renewables are now more than meeting demand growth for electricity. That has allowed for cuts in coal usage, although not for reducing capacity, which China prefers to keep as a backstop.

A colder winter from La Nina, or a spending splurge by the government to juice economic growth, could yet upset calculations around demand and prices as the year draws to an end.

But the longer that coal remains cheap and plentiful, the harder it will be to dislodge. Already, its burgeoning role in the chemicals industry is making consumption stickier than predicted. Shenhua’s parent foresees a drawn-out plateau for demand, once peak coal is hit as early as next year. BLOOMBERG