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(Bloomberg) — China has a glut of coal heading into the hotter summer months, a successful start to Beijing’s campaign to ensure there’s enough of its mainstay fuel to keep cool and power factories during the season when consumption typically peaks.

Avoiding shortages that have crippled the economy in recent years is a top priority for the government. The world’s biggest coal user accumulated 162 million tons of stockpiles in the first five months of the year, or 8.5% of consumption over the period, according to researchers at cqcoal.com. Moreover, there was a favorable shift in the balance in May, when supply rose 0.6% while demand fell 2.5%.

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China’s sluggish economy is hardly a cause for celebration, but prices are being subdued by tepid industrial demand, along with relatively normal temperatures for the time of year and heavy rains supporting hydroelectric power in the south of the country. The benchmark at the port of Qinhuangdao has inched lower over the past month to 863 yuan ($119) a ton as stockpiles have swelled. 

Although domestic coal production has dipped from last year, imports are running at record levels. That has “pushed inventories to an historical high, which may not be easily depleted in coming months,” Zhao Menglin, an analyst with cqcoal.com, told a briefing on Tuesday.

Traders who hoarded fuel at the beginning of the month in anticipation of summer demand are now sitting on losses after the market’s surprising turn, according to Fengkuang Coal Logistics. The research firm expects prices to climb back above 875 a yuan a ton next month as utilities run down stockpiles. Trading platform ocoal.com, meanwhile, reckons the market won’t bottom until it hits a low of 850 yuan in mid-July.

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Shanxi Output

More domestic coal is also on the way. Shanxi, usually the top producing province, is preparing to lift output after a slowdown caused by increased scrutiny on safety. That may raise national production closer to last year’s record levels, said cqcoal.com’s Zhao.

The weather is also doing its part. Hydropower generation, China’s main source of clean energy, rose 15% in the first five months, outpacing a much milder increase from thermal power plants, most of which use coal.

“Rainstorms have curbed air-conditioning demand in the south, and they will keep hydropower output strong through September,” said Zhao. “The coal price may stay lower than expected in the summer.”

Paying less for power is obviously good for households and factories, but it’s a drag on mining profits and won’t help with the deflationary pressures affecting industry. Coal production remains one of the worst-performing sectors in China’s industrial economy.

On the Wire

In many parts of China, the warehouses and industrial parks that used to be a magnet for international investors are grappling with a surprising slowdown in business activity.

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The outlook for China’s exports is set to improve, buttressing growth in the world’s second-biggest economy even as consumer spending slows, according to a Bloomberg survey of economists. 

China’s June PMIs are likely to show manufacturing contracting at a mildly faster pace and services broadly stagnating, according to Bloomberg Economics. Also from BE:

• Activity in China appeared to slow in the first two weeks of June after quickening in May.
• The pace of increase in China’s industrial profits likely slowed in the January-May period.

The solar-equipment industry’s intensifying price war is putting the survival of small to mid-sized producers at risk, according to Bloomberg Intelligence.

Plunging tanker rates, fewer oil imports and falling refinery utilization signal China’s sluggish oil demand and its fading economic recovery, BI said.

This Week’s Diary

Wednesday, June 26:

• CCTD’s weekly online briefing on Chinese coal, 15:00
• “Summer Davos” in Tianjin, day 2

Thursday, June 27:

• China industrial profits for May, 09:30
• LME Asia Metals Seminar in HK, 09:00
• “Summer Davos” in Tianjin, day 3

Friday, June 28:

• China weekly iron ore port stockpiles
• Shanghai exchange weekly commodities inventory, ~15:30

Saturday, June 29

• Nothing major scheduled

Sunday, June 30

• China’s official PMIs for June, 09:30

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