Flooding in south China threatens coal demand

Persistent heavy rains in many parts of south China for nearly a month have resulted in flooding that is threatening economic activity and weighing on coal consumption at a time when hydropower output has increased.

Floodwaters from at least 13 rivers in China's southwestern regions have exceeded warning lines, the ministry of water resources said. The country's meteorological administration today issued a rainfall alert for the 29th consecutive day.

At least 26 administrative regions have been affected by the floods, with 13.74mn people at risk and 10,000 homes destroyed, according to the central government. The government estimates damages at around 27.8bn yuan ($3.9bn).

Heavy flooding in the upper reaches of the main Yangtze river has raised concerns that the Three Gorges dam in Hubei province may be at risk of collapse, which will have catastrophic economic and social consequences for China. But Chinese authorities assured the public earlier this month that the dam is not at risk.

Operations in the Chinese cement sector, a large consumer of thermal coal, have been especially disrupted by the heavy rain and flooding, with cement prices in recent weeks falling after a steady recovery in April-May.

Increased hydropower output as a result of rising water levels could also weigh on coal consumption, despite the onset of the peak summer power demand season. The new Wudonghe hydropower station in Sichuan province began operations yesterday after recent trials and is expected to produce at least 38.91 TWh/yr of electricity. This could potentially reduce coal consumption by at least 12.2mn t/yr in south China, market participants said.

But a hot spell in parts of north China and along the southeast coastal regions has cushioned the slide in coal demand by encouraging more air-conditioning use. Beijing reached a high of 33°C today while the southeastern coastal city of Fuzhou recorded temperatures of 37°C. Combined coal burn at China's six main coastal utilities stood at 638,400 t/d yesterday, up slightly from 631,000 t/d a week ago.

By Kelvin Leong