Despite China heatwave, weak factory demand curbs coal prices, LNG imports

SINGAPORE, June 8 (Reuters) — An ongoing heatwave in China is boosting power demand for cooling, but tepid industrial demand and record high coal inventories are keeping prices at two-year lows and limiting spot liquefied natural gas (LNG) imports.

Analysts do not see coal prices rising or spot LNG imports picking up anytime soon as a sluggish domestic recovery from COVID-19 curbs and shrinking exports dampen power demand from manufacturers, which account for about two-thirds of electricity use in the world’s No. 2 economy.

“China has gotten used to using less LNG,” said Alex Siow, lead Asia gas and LNG analyst at pricing agency ICIS.

The outlook will hurt coal and LNG exporters, as China is the world’s biggest coal importer and vies with Japan as the top LNG buyer. The industrial and power sectors account for more than half of the country’s gas demand.

“Weak industrial demand is the root cause, with key gas consumers like ceramics and glass makers operating at low rates as they face poor external demand,” said a senior Chinese trader, who declined to be named as he is not authorised to speak to media.

He added that some of these plants have cut production by a third versus last year.

The weak outlook for coal and gas demand comes despite meteorologists warning of unseasonally hot weather for June, with temperatures exceeding 37 Celsius (98.6 Fahrenheit) from Beijing to Xinjiang.

Abundant piped gas supply, with some industrial users having agreed in late 2022 to additional purchases from state producers PetroChina and Sinopec, has also cut into spot LNG demand, the trader said.

At the same time, a weakening Chinese yuan has kept many importers on the sidelines, despite LNG prices having slumped to a two-year low around $9 per million British thermal units (mmBtu)