Driven by news of persistently high thermal coal demand, the coal sector in China’s A-share market strengthened once more. The Coal ETF (515220) surged over 4%, with a trading volume surpassing 370 million yuan, and its intraday price hit another new high. In a recent report, the International Energy Agency (IEA) warned that global coal demand will return to historical highs this year, while Europe's coal consumption may grow by 7% this year following a 14% jump last year.
Expectations of weak hydropower have intensified, dispelling concerns about off-season coal price pressures, further highlighting the certainty of the coal industry. Persistent high temperatures in the Sichuan-Chongqing region have led the market to expect continued weakness in hydropower. In 2021, hydropower generation in Sichuan reached 353.14 billion kilowatt-hours, but under ongoing drought and high temperatures, current hydropower output has dropped by 40-50%. With reservoir levels depleted during the wet season, it is expected that hydropower generation will remain insufficient from August 2022 to April 2023.
Over a nine-month period, assuming a 40% decline in hydropower in Sichuan, an estimated reduction of 105.942 billion kilowatt-hours in hydropower generation would occur. Based on a coal consumption rate of 300 grams of standard coal per kilowatt-hour, this corresponds to approximately 31.78 million tons of standard coal. Converting this to raw coal using a ratio of 1:1.4 for standard coal to raw coal, this amounts to 44.5 million tons of raw coal. This represents 1.84% of the 2.42 billion tons of raw coal consumed by China's thermal power plants in 2021. In summary, it is expected that due to weak hydropower, thermal coal consumption will increase by at least 1.84% by April 2023. Combined with similar impacts on hydropower in downstream provinces such as Hubei...