While the pace of declines slowed in April across
many sectors — in large part due to the base effect of comparing against last
year when Shanghai was in lockdown — the weakening of profitability at coal
mines worsened. Ferrous metals producers, which include the makers of steel for
buildings and cars, were the worst performers on a monthly basis.
The profits figures are just the latest in a line of
data that show China’s economic recovery stalling, particularly in industries
linked to manufacturing and construction.
Coal miners in the world’s biggest producer are
contending with a collapse in prices as rising domestic output is augmented by
massive imports, lifting stockpiles to historically high levels. The benchmark
price at Qinhuangdao port has dropped 18% this year to its lowest since the beginning
of 2022. Underlining weak industrial demand for fuel, liquefied natural gas
prices have fallen 40% since the start of the year.
The drop is counter to usual trends because it comes
despite rising temperatures, when much of the country is forced to crank up the
air-conditioning.
“The good days of high coal prices are basically
coming to an end,” said research firm Fengkuang Coal Logistics, which also
noted the ever-increasing contribution of renewables to China’s energy mix.
The flip side is that falling prices favor the power
plants that run on fossil fuels. The coal-fired operations of independent power
producers are likely to become profitable from the second quarter as the
so-called dark spread — the profit margin of electricity rates over coal costs
— expands further, said Tony Fei, an analyst at BOCI Research Ltd.
Steel mills, meanwhile, were sounding the alarm in
the middle of last year over crisis conditions in the industry at the height of
China’s Covid lockdowns. Another bleak summer is in prospect as seasonal demand
falls. The economy’s reopening after the pandemic has hardly improved matters,
and a disappointing construction season in the second quarter saw mills cut
prices.
China is likely to reduce output again this year to
help meet its climate goals, which should support prices and margins. But in
the absence of a resurgence in demand, that’ll be cold comfort for the world’s
biggest steel industry, and all eyes are now on whether Beijing is prepared to
expand the levels of stimulus that have so far disappointed markets.
Mining.com