China shivers as coal shortages see power stations pull the plug 

Electricity ‘rationing’ is in place in several cities as price rises and China’s row with its main coal supplier Australia bites deep - but Beijing says supply is not the issue 

China shivers as coal shortages see power stations pull the plug 
China's National Energy Information Platform has admitted that current coal supply guarantees are under pressure.

(ATF) China is suffering coal shortages across the country with Zhejiang, Hunan, Jiangxi and other provinces and cities introducing power rationing measures, according to the National Energy Information Platform. 

It comes after domestic thermal coal and coking coal futures prices both rose in December and there’s China’s ongoing dispute with Australia with the two countries almost at the point of cutting diplomatic ties – and Australia provides around 60% of China’s coal. 

Australia is already talking to the WTO about China’s behaviour in recent months which has seen them cutting imports of Australian goods from beef to barley, after Australia pushed for an investigation into the origin of the Covid-19 epidemic.

Read more: China to remain bright spot in mostly downward global oil market  

The refusal to import Australian coal though has led to shortages, especially in industry. Many plants have shut for ‘cleaning’ and with power-intensive industries switching off there are now shortages of commodities such a titanium dioxide, which has seen prices rise recently. 

Conversely, iron ore prices are now falling as smelters limit operations.

In China’s countryside, where residents usually rely on coal and wood fires for heating the situation is growing dire in some areas, with an especially cold winter set to bring low temperatures mixed with high winds.

The word from the National Energy Information Platform is that, although current coal supply guarantees are under certain pressure, it is not possible to simply equate electricity rationing and coal shortages in some areas. 

THERMAL POWER

Take Hunan Province as an example. From 2015 to 2019, the province’s electricity consumption increased by 28.8% but during this period the province’s electricity installed capacity increased by only 19.4%, while the dominant thermal power installed capacity increased by only 6.8%. 

For a long time, Hunan needed external power supplements. At present, the generator sets of the main power companies in Hunan Province are operating at full capacity. According to data from the Hunan Renewable Energy Association, as of December 15, there are 19.5 available days of electricity and coal in the province, which can basically meet the province's thermal power demand. 

With strong demand for industrial electricity and a surge in residential heating caused by the cold weather, Hunan Province lacks electricity but not coal. The data shows that in December, the available days of Zhejiang Power’s coal inventory have been maintained at more than 30 days, and the supply of electric coal has a strong guarantee.

The recent surge in coal prices is the result of a periodical imbalance between supply and demand under the combined action of multiple factors, the National Energy Information Platform said. 

TIGHT SUPPLY

The customs clearance for imported coal from countries other than Australia was liberalised in mid-December, and the regulatory role of imports will gradually appear, helping to alleviate the tight supply of coal for coastal power plants.

In terms of price trends, the substantial increase in thermal coal prices in the early days of the block on Australian coal was mainly driven by tight supply and demand, but there were also ‘irrational sentiments’ that the market was overly worried about coal shortages. 

With the efforts to ensure supply, the market's expectations for subsequent supply increases continue to improve. Recently, the price of thermal coal futures has corrected from a high level, authorities said. 

In terms of coking coal, the low-sulphur resource supply gap caused by import restrictions on Australian coal cannot be met through other import channels in the short term. Although the current coking coal inventory in the coking plant is high, there are structural problems, and the demand for winter reserves of steel mills has yet to be resolved.

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