Fighting in Iran has sent oil above $100 a barrel, roughly doubled LNG prices across Asia, and pushed coal higher too. When oil and gas grow costly, coal starts to look like the cheaper alternative, and the conventional wisdom holds that consumption will follow. In China, however, the way its coal market is structured means that outcome is far less certain than it looks.
Coal generates around 60% of China’s electricity and accounts for over 95% of all carbon emissions produced by the power sector. Steel production, which produces 15–17% of national emissions, also depends heavily on coal. Despite the country’s continued reliance on coal-fired energy, current conditions in the global energy sector do not affect China the way they impact other markets, largely due to price control by Beijing.
The National Development and Reform Commission holds coal to a fixed band of CNY 570–770 ($84–$113.4) per ton, and production levels and stockpile releases are adjusted to keep prices within that range. A price drop triggers supply cuts; a price spike prompts state-owned producers to flood the market with stockpiles. Leading coal producer China Energy Group actively manages the spot market to maintain stability.
Global coal prices have moved up alongside oil and gas, but domestic Chinese prices have held within the government band, making the fossil fuel cheaper within the Chinese market. Bringing in coal at world market prices and selling it inside China would mean taking a loss, so imports are not happening. China and the rest of the world now effectively operate on two different coal markets, with little connecting them.
Even if domestic prices spiked, reactivating an idle mine requires safety checks, equipment work, and staffing, often taking a year or more. Beyond the time barrier, when prices rise the government pockets the surplus, and when they fall, it’s the producers who absorb the losses. For many operators, expanding production in times like these only deepens the deficit.
China’s two biggest coal-consuming sectors face constraints that make higher consumption unlikely regardless of price. Power generators cannot pass higher fuel costs to customers since electricity prices are state-controlled, so rising coal prices simply erode their margins. It was this dynamic that caused blackouts across China from 2020 to 2022. Falling property demand and new export barriers have pushed steel into decline, and higher coking coal costs will only accelerate closures.
China’s coal-to-chemical sector, which has expanded significantly in recent years, is also running close to its limits. Several plants already run above rated capacity and there is little room to grow. The likely outcome is not higher coal use but structural shortages. Some buyers will be reliably supplied while others encounter repeated gaps, particularly at times of peak seasonal demand. In the meantime, analysts say the market is essentially frozen.
Meanwhile, firms like Frontieras North America Inc. are developing novel ways to use coal for energy without combusting it directly. As these applications gain traction, concerns about emissions from the use of coal for energy will gradually be addressed.
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