Energy analysts<\/a> and observers<\/a> say more expensive oil makes coal look relatively cheaper (not mentioning the risk of physical interruption of liquid fuels in some regions) and so more competitive, meaning consumption will go up. This has happened in Asia before and is concerning to many given coal\u2019s central role in global warming. More than 95%<\/a> of the direct carbon emissions from China\u2019s electricity sector come from coal.<\/p>\n\n\n\n However, the makeup of China\u2019s coal system makes it very unlikely that the high oil and gas prices will lead to more coal use there.<\/p>\n\n\n\n Coal accounts for about half<\/a> of China’s primary energy consumption, about 60%<\/a> of electricity generation and the vast majority of its carbon emissions from such generation. Emissions from the iron and steel industry, which contribute 15-17%<\/a> of national emissions, come mainly from coking coal and coal burned in captive power plants.<\/p>\n\n\n\n Over the last decade, China\u2019s policy has focused on capping energy consumption, in order to gradually bring emissions to a peak. During the 15th Five Year Plan period (2026-2030) that focus is shifting to controlling emissions directly.<\/p>\n\n\n\n China has not yet set an overall economy-wide emissions cap. However, the government stated in a document<\/a> on 23 April that the setting of energy consumption and carbon emission quotas for key industries would be sped up.<\/p>\n\n\n\n With no such caps currently in place, national coal consumption isn\u2019t largely determined by policy requirements, or by market demand, but by the supply side \u2013 the behaviour of numerous coal mining firms.<\/p>\n\n\n\n The National Development and Reform Commission (NDRC) sets a price range for mid- and long-term contracts between coal producers and power plant owners. It\u2019s currently CNY 570-770 per tonne of benchmark coal.<\/p>\n\n\n\n The NDRC then uses supply and reserves to influence coal prices. When prices go down, it uses various measures to reduce supply and push prices back up. When prices rise too quickly, state-owned coal companies are told to release reserves onto the market.<\/p>\n\n\n\n China Energy Group, the country\u2019s biggest coal producer<\/a>, is charged by the NDRC with managing prices<\/a>. When they are fluctuating, the company can make more frequent releases onto the spot market, use port reserves to reduce reliance on imports, or adjust fulfilment of long-term contracts to help balance supply and demand. The market stays stable, with no need for government statements.<\/strong><\/p>\n\n\n\n China\u2019s Pricing Law allows the NDRC to intervene when coal prices are high, but there are limits to what it can do.<\/p>\n\n\n\n If it wants to bring prices down, the government can encourage more production. But bringing a dormant mine back requires safety and equipment checks, and personnel preparation. It can take six months, or even years, before production ramps up. And, as prices are not being raised, that extra production doesn\u2019t mean more profit for companies or taxes for local governments. So there can be a lot of resistance on the ground.<\/strong><\/p>\n\n\n\n The bigger issue, though, is with long-term incentive mechanisms. When prices are high, the government takes the extra profits. When they are low or costs rise, the companies are left to bear the losses alone. The NDRC\u2019s price range hasn\u2019t changed for years, but mining and other operational costs have risen constantly. Profits have been squeezed, and for some companies increased output just means<\/a> increased losses. So, on the supply side, there are no incentives to boost production.<\/p>\n\n\n\n If domestic production doesn\u2019t go up, will exports fill the gap? Again, the answer is no. International coal prices have risen since the conflict but price limits in China mean coal is cheaper there. Traders would make a loss trying to sell imported coal, and power plants are reluctant to spend any more than the price set in their existing long-term contracts. This creates two separate markets, the international and the Chinese.<\/p>\n\n\n\n There may also be a disconnect between the short- and long-term markets. When prices are stable, the reliance of China\u2019s coal market on long-term arrangements works well. But when market prices and contract prices diverge, problems appear. If spot market prices start to go up by 10-20%, producers may be inclined to sell on there and either let long-term supply contracts go unfulfilled, or fraudulently swap in lower-quality coal to meet those obligations. In other words, long-term mechanisms break down during short-term price fluctuations, with companies likely to seek out short-term profit rather than fulfil less lucrative long-term contracts.<\/p>\n\n\n\n The electricity sector, the biggest coal consumer, is restricted by long-term contracts. Generators cannot pass increased costs onto their customers because the government oversees the prices of long-term electricity supply contracts. When spot market prices reach a certain point, generators are not able<\/a> to make a profit from extra output. That loss of incentive to generate more power was the cause of the widespread power shortages of 2020-2022. We may see similar circumstances arise from the current external impacts. This would mean generation falls off, offsetting any increase in coal consumption.<\/strong><\/p>\n\n\n\n Expansion is even less likely in the steel sector. China\u2019s property market is in a slump, demand for steel is falling, exports are facing new trade barriers. There is no scope to expand steel production and the sector as a whole is contracting. Given this, any increase in the cost of coking coal \u2013 which is used to fire steelmaking blast furnaces \u2013 will only push profits down and accelerate the retiral of inefficient capacity. <\/strong><\/p>\n\n\n\n The coal-to-chemical industry is one of the few to have seen significant growth in coal use in recent years. This is partly because since 2022 using energy sources as raw materials has been excluded<\/a> from energy consumption caps. Another factor is that falling coal prices from 2025 to early 2026 have reduced input costs for the sector. But the proportion of capacity in use is already very high in the industry, and there is a limit to how much coal could be consumed. For example, utilisation rates at plants making synthetic ammonia and urea are already at about 95%<\/a> by 2024.<\/p>\n\n\n\n Last year, average utilisation rates for the four main coal-to-chemical industry product lines were 87%<\/a>, with some firms at over 100%<\/a>. There is little if any room to further boost production in the short run. Coal-to-chemical products could replace some petrochemical products, but there is little scope for expansion.<\/p>\n\n\n\n During the planned economy era (1949-1978), coal was allocated by government order, rather than by market forces. Power generators, steel mills and chemical plants relied on assigned quotas and relationships with officials for their supplies. The price of coal was kept artificially low and companies without a quota had to find other ways to get their supply.<\/p>\n\n\n\n With prices currently restricted and the market\u2019s own stabilisation mechanisms not working, there is a risk of structural shortages. That might not manifest as a complete cutting off of supply, but as follows: some customers will have stable supplies, while others will, at times of peak demand such as during stocking up for winter, face repeated shortages.<\/strong><\/p>\n\n\n\nWhy coal matters and what determines its price in China<\/h2>\n\n\n\n
<\/a>A divided market<\/h2>\n\n\n\n
The power and steel sectors cannot burn more coal<\/h2>\n\n\n\n
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<\/div>Structural shortages<\/h2>\n\n\n\n