China reassures public of ‘balanced’ coal supply for winter as provinces cut back power to factories

Amanda Lee
·6-min read

China’s economic planning agency has shrugged off domestic concern about higher coal prices due to tight supply, saying there is enough in reserve for winter despite reports that provincial governments have ordered reductions in power use.

The domestic price for thermal coal, which is used in power generation, shot up above 760 yuan per tonne on Wednesday, market participants told the South China Morning Post, far more than the government’s upper price limit of about 600 yuan per tonne.

Spot market prices have been above 620 yuan per tonne this week, from 500 yuan per tonne a month ago, as production from coal producing provinces Shanxi and Shaanxi, as well as neighbouring Mongolia, failed to compensate for shortages from lower imports, analysts said.

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China has in recent years cut back on electricity for factories to ensure households have enough power for heating during the winter, but the situation is more complicated this year. Many manufacturers are working at full capacity to meet foreign demand for medical supplies, medicines and consumer electronics because of the coronavirus outbreak in the United States and Europe.

Current coal market supply and demand are generally balanced, and coal supply this winter and next spring is guaranteed

Meng Wei

China’s top economic planning agency, the National Reform Development Commission (NDRC), said on Wednesday there was sufficient supply for winter heating and power plants had locked in lower prices for most coal orders, which would prevent a spike in energy costs for consumers.

Spokeswoman Meng Wei said the current coal inventory was sufficient for 21 days of operation at power plants across the country and 31 days in northeastern Heilongjiang province – the coldest part of the country during winter.

“We have noticed coal prices have risen recently and that has caused widespread concern in society. However, current coal market supply and demand are generally balanced, and coal supply this winter and next spring is guaranteed,” Meng said.

“We have coordinated with local coal mines in the major coal-producing areas to rationally organise production, leveraging medium- and long-term contracts on coal supply, [and] strengthen coal transportation security.”

More than 80 per cent of coal secured by power plants has been locked in at between 540 and 550 yuan per tonne, Meng said.

“Price increases on the remaining supply will not affect the security of coal [supply],” she added.

China has imposed import restrictions this year to keep domestic coal prices within a certain range – ideally between 500 and 570 yuan per tonne – to protect the profitability of domestic miners.

But coal prices have skyrocketed since October to a level not seen since May last year, fuelled by seasonal demand and buoyant industrial activity as China’s economy rebounds strongly from the pandemic, according to data analyst Trading Economics.

Import restrictions have also helped drive up the price of coal. Coal imports fell 15 per cent in November compared to a year earlier and about 21 per cent compared to the same time last month, following restrictions on the commodity from Australia and Indonesia, Trading Economics said.

China imposed an informal ban on Australian coal in November after its import quota for the year was reached.

Supply was further disrupted by an accident at a coal mine in southwest China that killed at least 23 workers, the second in the region in two months, according to Trading Economics.

Despite assurances about supply from the NDRC on Wednesday, the planning agency opened up import quotas at the weekend to address shortages, but left out Australia as a trade spat continued between the two countries.

Ordos Coal Trading Centre said last week the informal ban on Australian coal was a major reason driving up prices.

“Right now, there are more than 80 Australian cargo ships, carrying 8.8 million tonnes of coal,” the coal trading and service provider said in a research note. “But under the current circumstances, in the short term, they will not be allowing in Australian coal, but rather will depend on [supply] from the domestic market.”

Amid the concern about high coal prices, provincial governments have begun issuing notices to manufacturers to scale back electricity use.

Zhejiang province, south of Shanghai, ordered local factories to curb power consumption and comply with a usage schedule, affecting the productivity of exporters in the manufacturing hubs of Jinhua and Yiwu, many of which are still recovering from the pandemic and are increasingly concerned the limitations might impact shipment deadlines.

Some factories have bought diesel generators for electricity, while others were forced to ask workers to take holidays.

“Many small- to medium-sized plants in Jinhua and Yiwu have received notices banning production for one or two days after operating for two days, between December 13 and December 30 … and some small workshops are even required to stop production completely during the period,” a manufacturer in Zhejiang, who declined to give his name, told the Post.

The Zhejiang government has imposed power use limitations in the industrial city of Wenzhou between December 11 and December 20, with offices only to use heating when the temperature dropped below 3 degrees Celsius and restaurants told to turn on air conditioning solely for diners, according to a notice seen by the Post.

The NDRC branch in Hunan province also issued an emergency notice last week asking power plants to start “rationalising the consumption of electricity”.

“The province’s maximum load has reached 30.93 million kilowatts, exceeding the historical record in winters. The maximum daily power consumption is 606 million kilowatt-hours, an increase of 14.1 per cent year-on-year, and the power supply situation is tight,” the notice said.

“Relevant users should appropriately limit their electricity consumption, shut down city attraction lighting and turn off half of street lights and close government offices on weekends.”

Hunan will also introduce blackout periods, with key public facilities such as schools and hospitals getting priority for electricity usage.

Chinese authorities have not yet confirmed if Australian coal has been excluded from the new import quota, but unofficial restrictions on coking and thermal coal from the country are still in place.

Dozens of vessels laden with Australian coal have been stranded outside Chinese ports since June, waiting to offload orders that were placed before the verbal ban.

The new ban, if confirmed, is the latest escalation in a series of trade actions from China that began in April, when Australia called for an international inquiry into the origins of the coronavirus without consulting Beijing.

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