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Collapse in China’s Hydropower Output No Surprise; Coal Mining Continues To Be Prioritized; Dry Bulk Imports Continue To Rise

Data released yesterday shows that China’s electricity production in September totaled 683 billion kilowatt hours. This is down month-on-month by (-17%) but is up year-on-year by 7.9 billion kilowatt hours (1%). A large month-on-month decline is seasonal and occurs every September.

Of significance this year, though, is that hydropower output has come in at a very low level as we have anticipated. Hydropower output in September totaled only 99 billion kilowatt hours. This is down month-on-month by 23.6 billion kilowatt hours (-19%) and is down year-on-year by 41.9 billion kilowatt hours (-30%). As we stressed earlier this month, hydropower output at the Three Gorges Power Station has been coming under great pressure due to low water inflow, and particularly noteworthy to us two weeks ago was Q3 Three Gorges Power Station generation data that showed hydropower output at this critical station fell year-on-year by 52%. Overall, China’s sharp decline in hydropower output has not come as a surprise. The weakness remains beneficial for China’s thermal coal demand prospects.

Coal-derived electricity generation in September totaled 483.9 billion kilowatt hours. This is down month-on-month by 115 billion kilowatt hours (-19%) but is up year-on-year by 31.8 billion kilowatt hours (7%). As with overall electricity production in China, coal-derived electricity generation in September always falls by a large amount on a month-on-month basis due to normal seasonality. Year-on-year change is more noteworthy and the 7% growth is significant.

China’s coal production in September totaled 386.7 million tons. This is up month-on-month by 16.3 million tons (4%), up year-on-year by 52.6 million tons (16%), and marks the second largest amount of coal ever mined in China. As we have continued to stress in our weekly reports and updates, the Chinese government is no longer primarily focusing on improving safety in the domestic coal market and instead has shifted its main focus to increasing production.

China imported 33 million tons of coal in September. This is up month-on-month by 3.5 million tons (12%) and is up year-on-year by 100,000. Iron ore imports totaled 99.7 million tons. This is up month-on-month by 3.5 million tons (4%) and is up year-on-year by 4.1 million tons (4%). Soybean imports totaled 7.7 million tons. This is up month-on-month by 500,000 tons (7%) and is up year-on-year by 800,000 tons (12%).

A full breakdown of electricity production by type will be analyzed in our next week’s client report. Ongoing growth in steel production and overall industrial production will also be discussed. Overall industrial production in China reportedly grew year-on-year last month by 6.3%. Industrial production has now grown on a year-on-year basis during each of the last five months.
Source: Commodore Research & Consultancy, By Jeffrey Landsberg, Managing Director

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