Early Wednesday morning, China was hit by its sixth tropical storm of the season. Tropical Storm Haiku made landfall in Zhejiang province, which is located approximately 140 miles (225 kilometers) south of Shanghai. In addition to bringing sustained winds exceeding 60 knots (69 miles per hour) and causing damage to several buildings and shipyards, the storm dumped even more rain on parts of China that had already received an abundance of rainfall in recent weeks.
According to China's National Meteorological Center (NMC), Tropical Storm Haiku dumped as much as 17 inches (435 millimeters) of rain in Zhejiang province within the first thirteen hours of making landfall. Eventually the storm shifted towards more of a northwestern direction and brought heavy rain to the central provinces of Jiangxi, Anhui, and Hubei before weakening.
While villagers have suffered from flooding caused by the storm, Chinese electricity providers have been able to further benefit from an increase in hydropower production. Since the start of June, China has been hit by six tropical storms. In comparison, only three tropical storms made landfall in China during the same period last year. The much larger amount of tropical storms this year have caused Chinese hydropower production to surge.
According to China's National Bureau of Statistics (NBS), hydropower production totaled 75.3 billion kilowatt hours in June. This was 13% more than produced in May and the largest amount of hydropower produced in China in any single month since September 2010. Hydropower production data is still pending for July, but all accounts point to production exceeding June's robust total.
The recent surge in hydropower production has put pressure on Chinese thermal coal demand. With a growing amount of electricity being derived from hydropower, Chinese thermal coal-derived electricity production has come under pressure. According to China's National Bureau of Statistics, thermal coal-derived electricity production totaled only 295.3 billion kilowatt hours in June. This was 2% less than produced in May and 6% less than was produced in June 2011.
Reduced demand for thermal coal has caused Chinese thermal coal prices to fall. According to various traders, domestic Datong thermal coal with a calorific value of 5,800 kcal/kg, for example, is being sold for approximately 705 yuan/ton ($111/ton). A year ago, Datong thermal coal with a calorific value of 5,800 kcal/kg was being sold for approximately 885 yuan/ton ($139/ton).
Chinese thermal coal prices are currently about 20% lower than they were during the same time last year. Going forward, the general consensus in the market is that domestic thermal coal prices will remain low for at least the next few months. Chinese hydropower production continues to surge and the ongoing Pacific Tropical Storm Season is expected to remain very active. The Pacific Tropical Storm Season lasts from June 1 to January 1. With hydropower production continuing to rise, Chinese demand for thermal coal will remain under pressure.