Energy | Coal’s two-year rally to end in Europe as China addiction fades

A two-year rally in coal is set to unravel in northwest Europe as China reasserts an anti-pollution drive it eased to keep citizens warm in a frigid winter.

Benchmark coal prices will probably fall about 16 percent by the end of next year, capping the longest rally in year-ahead rates since 2010, according to a survey of analysts and traders by Bloomberg News.

China, which uses almost half the world’s coal, will import less as it cuts its reliance on the dirtiest fossil fuel to curb smog. But the switch to cleaner energy hasn’t been smooth, lending support to coal prices from Australia to Rotterdam. Officials this month reversed a coal-burning ban in some provinces as temperatures plunged, and factories were ordered to cut power use as there wasn’t enough natural gas.

“We expect prices to fall back by the end of the winter,” said Thomas Pugh, a commodities analyst at Capital Economics Ltd. in London. “Supply is picking up, and there is a big push in China away from coal towards gas and renewables. In the long run, that’s only going to go one way, and it will affect prices globally.”

Prices for year-ahead European coal will end 2018 at USD77.75 a ton, according to the average of six estimates in the survey. The contract will probably trade at about $86.40/ton by the end of March.

Seasonal demand may still sustain the current rally throughout winter, said Georgi Slavov, head of energy, ferrous metals and agricultural research at London-based commodities broker Marex Spectron, who cited low inventories in Asia and Europe. An increased availability of short-term credit has allowed buyers in China and India to further ramp up demand in the past four weeks, he said.

And as coal loses favor in China, the prospects for the mineral in Europe are “bleak” and U.S. demand will continue to decline, the International Energy Agency said in its Coal 2017 report published yesterday. But the fuel’s use in India and other Asia nations is forecast to grow.

Still, supply will outstrip demand and prices will begin to drop in the second half of next year, according to Barbara Lambrecht, an analyst at Commerzbank AG.

“China’s coal demand is likely to have passed its peak,” Lambrecht said. “A structural shift away from heavy industry and toward a more service-based society will slow demand as it dampens the country’s need for energy.” Ladka Bauerova, Bloomberg

Local aid for electric cars to end, say insiders

China is planning to tell local governments to stop offering subsidies for electric cars and other new-energy vehicles, people familiar with the matter said, a move that could undermine demand for autos made by companies including BYD Co. and BAIC Motor Corp.

The Ministry of Finance is working on a plan that would mandate authorities to phase out the incentives to discourage protectionism and help rein in state expenditure, the people said, asking not to be identified. The plan may be implemented as early as next year.

Automakers would still be entitled to the central government’s funds, the people said. The ministry didn’t immediately respond to a fax requesting comments.

The grants have made electric vehicles more affordable in a market that surpassed the U.S. as the world’s biggest in 2015 and one that now accounts for half of global EV use. Subsidies have been a cornerstone of an almost decade-old policy to help promote zero-emission vehicles, but Beijing is reviewing the payouts to iron out some distortions and also to cap costs to the exchequer.