The roles of inter-fuel substitution and inter-market contagion in driving energy prices: evidences from China’s coal market

Jianglong Li, Chunping Xie and Houyin Long

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Coal has been dominating energy supply and consumption in China, with the country becoming the largest energy supplier and consumer worldwide. Due to inter-fuel substitution of crude oil and inter-market contagion of international coal market, China's coal price might be interrelated with crude oil price and international coal price. However, the precise roles of these two effects in determining China's coal price are unknown. This paper contributes to previous literature by investigating this issue. We find that co-movements between China's coal price and crude oil price largely hinge on the shares of oil and coal in China’s energy mix, while its co-movements with international coal price depend on scales of coal trade. Inter-fuel substitution dominated the interaction of China's coal market with other energy types, but the importance of inter-market contagion has been increasing. We also find that China might have become an originator for driving the returns of crude oil and international coal, in particular after 2008. Furthermore, China's coal market is still a net volatility recipient for shocks from both crude oil market and international coal market. Given the increased integration of global energy markets, we anticipate this paper to provide a better understanding on the dynamic changes in China's coal prices.

Keywords: China's coal price; Inter-fuel substitution; Inter-market contagion; Crude oil market; International coal market (search for similar items in EconPapers)
JEL-codes: J1 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2019-10-14
New Economics Papers: this item is included in nep-cna and nep-ene
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Citations: View citations in EconPapers (32)

Published in Energy Economics, 14, October, 2019, 84. ISSN: 0140-9883

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