BEIJING: China’s coal futures dropped more than 1 percent on Friday, as rains raised expectations of higher hydropower production and the prospects of easing coal demand from utilities dampened the market outlook.

The most active Zhengzhou thermal coal futures contract dipped 1.2 percent on Friday to 571.2 yuan ($83.52) per tonne, its third straight day to decline and its biggest daily drop in one month.

Forecasts for rain across China has revived hopes of rebounding output from hydropower stations such as the Three George Dam, data from China’s Ministry of Water Resources showed. Water outflows from the Three Gorges Dam, China’s largest hydropower station, has more than doubled to 19,500 cubic meters per second, according to the ministry, indicating a doubling in the power output as well.

“Recent rainstorms have dampened sentiment from investors after thermal coal futures rallied for quite a long time now,” a coal futures trader said, adding that rising coal stocks at utilities has added to bearish concerns.

“We closed out our thermal coal position to take profit.”

Coal stocks at six of China’s largest utilities have risen to around 19 days of use, up from 18 days last month, according to Qinghuangdao port data.

Inventory levels are holding above the critically low level of 15 days of use, which forces utilities to buy stock.

“Coal consumption from utilities is not as high as we have expected, so I think the previous gains in coal prices were driven by limited supplied rather than bullish demand from end-users,” another trader from China Minmetals said.

Despite the dip over the last few days, coal prices are still up more than 10 percent so far in June.

Lower coal prices could help relieve the burden on coal-fired power producers as they face a glut of power capacity and high fuel costs.

High coal prices have forced China’s state planner to reduce surcharges paid by coal-fired power producers, paving the way for the first increases in wholesale power prices since 2011

Traders and analysts say coal futures prices will rebound in the near term as spot thermal coal prices offered by miners continue to rise.—Reuters