China’s Thermal Coal Demand Squeezed by Soaring Hydropower

Coal demand for power generation in China is set to be lower than previously thought due to high rainfall boosting hydropower production, according to China's Coal Transportation and Distribution Association.

Hydropower generation in China jumped by 42.9% in the last third of April compared to the same period last year and is “very likely to maintain double-digit growth,” Reuters quoted Feng Huamin, an analyst at China Coal Transportation and Distribution Association, as saying at a market seminar on Wednesday.

During the first half of last year, coal production, coal imports, and coal-fired electricity generation jumped and offset a significant decline in power output at China’s massive hydropower capacity due to insufficient rainfall and drought. Rainfall in the Yunnan province in China dropped by more than 60% yearly during the first four months of 2023. Renewables helped to partially offset the crippled supply from hydropower generation last year, but coal saved the day.   

In recent weeks, the Yunnan province in southern China has had more rain, according to Feng.

“Following the beginning of the flood season, hydropower's squeeze on thermal power generation will gradually become more obvious,” Feng said.

Rising renewable energy capacity will also squeeze coal power generation, the analyst added.

Still, China has boosted its imports of coal so far this year, as it looks to stockpile fuel for the power plants ahead of the summer amid international prices that were half last year’s levels in the first four months of 2024.

China’s increased coal imports so far this year are defying earlier expectations that Beijing would see flat coal purchases in 2024.

Coal output in China has wobbled this year after authorities in the northern province of Shanxi, the top coal-producing region, ordered in February miners to reduce production and carry out safety inspections between March and May, following several fatal incidents at mines in China in recent months.

By Tsvetana Paraskova for Oilprice.com

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