Stock in China Shenhua Energy, the world’s top coal producer by market capitalization, dropped as much as 3.2% as spot coal prices at Qinghuangdao port fell for the first time since July 2009. The company produced 210 million tons of coal in 2009, representing an annual growth of 13.2%, even as exports dropped 35.8% due to lessened global demand.
The price decline confounded speculation that power shortages resulting from recent intense winter weather in China’s central provinces would drive demand higher. While the passing of the poor weather has lessened some of this pressure, China’s coal demands are expected to increase 4-6% in 2010. Falling prices at Qinghuangdao may therefore be a mere temporary phenomenon. Constant increases in spot prices are unsustainable, so a fall in prices should not inspire overreaction.
The government has already instituted programs to encourage the development of alternative energy sources, and recent monetary policy tightening suggests that concerns about overheating may lead officials to rein in overcapacity in manufacturing. But a recovering global economy and increased domestic demand will both put significant strain upon China’s power generation infrastructure in the coming year. Anticipated GDP growth of 8% in 2010 will be impossible unless the country’s appetite for coal remains satiated.