Chimneys of a power plant is seen in Shanghai, China, October 14, 2021. REUTERS/Aly Song

China’s Power Woes May Worsen as Demand Surges Amid Coal Supply Lag

Reuters
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October 18, 2021
Reuters

By Muyu Xu and Shivani Singh

BEIJING, Oct 18 (Reuters) – China’s power woes look set to intensify as coal prices rose to a record on Monday following data showing supply of the fuel fell in September adding to concerns that domestic output may be unable to meet surging electric generation demand.

Shortages of domestic coal have driven fuel prices for Chinese power generators higher, causing the unprofitable companies to ration power to industrial users. That has forced some factories in the world’s largest economy to suspend production, disrupting global supply chains.

China, also the world’s biggest energy consumer, has enacted measures to increase the output of coal, which fuels nearly 60% of its power plants, but government data on Monday showed that those steps will take time even as power demand surges to meet post-COVID-19 industrial needs.

Coal output in China was 334.1 million tonnes last month, down from 335.24 million tonnes in August and 0.9% lower from a year earlier, data from the National Bureau of Statistics (NBS) data showed.

September output averaged 11.14 million tonnes a day, according to Reuters calculations based on the data.

The National Energy Administration (NEA) last week said current daily output has climbed to more than 11.2 million tonnes, underscoring the slow pace of bringing meaningful supplies to market.

“The Chinese government is losing the battle to control soaring coal prices,” said Alex Whitworth, head of Asia Pacific Power and Renewables Research at Wood Mackenzie. “Despite efforts to increase coal supply, output fell in September due to weather, safety and logistics challenges. Neither has China succeeded in reining in booming power demand”

The NEA also reported September electricity consumption rose 6.8% from a year earlier and is up 12.9% for the first nine months of the year.

The supply and demand mismatch helped push Chinese coal futures to another record on Monday. Coal for January delivery, the most actively traded contract, climbed by the upper trading limit of 11% on Monday to 1,829 yuan ($284.15) a tonne, signaling a belief in a persistent coal supply crunch.

Last week, China took a big step in power reform by allowing coal-fired power plants to pass on higher costs to some customers, with an aim to encourage power plants to generate more electricity and to ease their profitability pressures.

“Recent price liberalization for coal power utilities and industrial end-users is a signal that the government is not confident that it can control coal prices in the near future,” said Whitworth.

($1 = 6.4367 Chinese yuan renminbi) (Reporting by Muyu Xu, Shivani Singh and Beijing Newsroom; Editing by Christian Schmollinger)

(c) Copyright Thomson Reuters 2021.

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