China's Coal Price Rises as Drought Cuts Stockpiles (Update1)

BEIJING, May 6 -- Coal prices at Qinhuangdao, China's largest port for the fuel, gained the most in more than four months as demand increased amid a drought in the southwest.

Prices for coal with an energy value of 5,500 kilocalories per kilogram rose 2.8 percent to between 720 yuan ($105) and 730 yuan a metric ton as of yesterday compared with a week earlier, according to data from the China Coal Transport and Distribution Association. That's the biggest increase since Dec. 28.

China, the world's second-biggest electricity producer, is counting on its coal-fired power plants to offset a reduction in hydropower because of a dry spell in the southwest that's lasted six months. Coal inventories at Qinhuangdao have fallen 43 percent in the past two months to 4.62 million tons, according to data from Shanghai Steelhome Information.

"Hydropower capacity utilization is down because of the drought," Andrew Driscoll, an analyst at CLSA Asia-Pacific Markets, said by telephone from Hong Kong. "There has been some rainfall and some relief but generally water levels are lower than what they'd normally be."

China ended its "grade two" emergency drought response measures after rain fell in some of the hardest-hit southwestern regions, Xinhua News Agency said yesterday, citing the Office of State Flood Control and Drought Relief Headquarters. Drought conditions in most parts of Yunnan province remained "severe," it said.