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Coal prices hit record highs in China with knock-on effects for PP, PVC markets

by Merve Sezgün - msezgun@chemorbis.com
by Pınar Polat - ppolat@chemorbis.com
  • 05/10/2021 (09:20)
Coal supplies have tightened significantly amidst the dual control policy in China. The lack of imports also contributed to the coal shortage in China, with spillover effects on electricity curbs as well as coal-generated PVC and PP production.

According to media sources, coal prices in China have more than doubled this year to hit all-time highs due to a combination of short supplies and rising power demand from the manufacturing sectors and households.

The country’s domestic coal supplies have tightened significantly amidst the “dual control” targets aimed at controlling energy use. A lack of imports from Australia and Mongolia has exacerbated the situation, meanwhile. Imports generally account for up to 10% of Chinese coal consumption.

The Chinese government has been ramping up efforts to lower carbon dioxide emissions in line with its environmental plans. The country has made a variety of pledges to address its carbon emission problems. These pledges included reaching peak carbon dioxide emissions before 2030 and achieving carbon neutrality by 2060. However, this mission has weighed on the country’s coal output notably.

In the meantime, close to 60% of China’s power is generated by burning coal and demand for electricity power has been rising since China lifted all pandemic-related restrictions in around April 2020, as factories increased production to meet pent-up demand. Amidst the noticeable hikes in coal prices, electricity generators were not free to reflect their rising costs onto customers due to the Chinese government’s rigid pricing policy, which reduced power plants’ appetite to generate electricity. Accordingly, electricity shortage has ensued.

According to an article by The Wall Street Journal, China’s economic planning agency, the National Development and Reform Commission has recently said it would increase coal production and import more coal to meet demand and put a cap on further price hikes.

PP, PVC markets mirror rising coal prices

The high coal prices have had an immediate effect on the coal-based production plants including for PP and PVC. With the high coal prices paving the way for rising Dalian futures, local prices have reached new high levels.

Local PP prices in China have been on a steady uptrend since early September with support from firm Dalian futures,improved demand amid the holiday season. The country’s recent measures to curb the country’s energy consumption as part of the ‘dual control’ policy, which has resulted in reduced operating rates, particularly for coal-based PP production, has also boosted the sentiment.

Import PP prices in China, meanwhile, have started to follow suit since the second half of September. Low import availability amid overseas sellers’ preference for other more profitable export outlets has been fueled by the bullishness in the country’s local market.

During the week that ended on October 1, local homo-PP raffia and inj. prices were assessed CNY200-500/ton ($31-78/ton) higher on the week to currently stand at CNY9000-9400/ton ($1227-1281/ton without VAT) on an ex-warehouse China, cash including VAT basis. According to the ChemOrbis Price Index, the weekly average of prices is standing at the highest level since March.

Within the same period, import prices were assessed $20-40/ton higher from the previous week at $1140-1210/ton CIF China, cash basis.

Coal-based PVC production suffers the most amid exacerbated tightness

The impact on the China PVC market has been more visible, as the sharp increases in spot prices show. Domestic supplies have tightened further due to the country’s energy consumption curbs, causing reduced coal-generated and ethylene-based PVC production. This has been a factor that reinforced the bullishness in China’s PVC market, driven by the global supply dearth amid robust demand, and historically high prices in India.

Since the uptrend in China’s local PVC markets has kicked off in early August, ethylene and acetylene-based PVC prices have gained around 20% to hit all-time high levels based on ChemOrbis data.

During the week that ended on October 1, local ethylene and acetylene-based were assessed CNY700-900ton($109-140/ton) higher on the week to currently stand at 11200-11600/ton ($1527-1581/ton without VAT) and 11000-11300/ton ($1499-1540/ton without VAT) on an ex-warehouse China, cash including VAT basis.

As for imports, prices were assessed $120-130/ton higher from the previous week at $1600-1650/ton CIF China, cash basis. ChemOrbis data also suggest that the weekly average of PVC K67 prices have also hit all-time high levels just like local prices.

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