China’s power crunch does not seem to ease as coal prices continue to surge to record levels while supply shortages intensify.

Coal prices reached new heights on Monday in the wake of data showing a marked shortage in supplies during the month of September amplifying concerns regarding the insufficiency of domestic output to meet the rising demand for power generation in the country.

The shortage of domestic coal has pushed fuel prices for the county’s power generators higher causing the unprofitable companies to ration power to industrial consumers. As a result, a number of factories have been forced to suspend production causing disruptions in global supply chains.

China being the largest energy consumer in the world, has taken measures to ramp up coal output which is responsible for fueling around 60% of the country’s power plants. However, the data provided by the government indicates that those measures will take time to increase the coal output while the demand for electricity rises to meet the post-pandemic industrial needs.

As per data from the National Bureau of Statistics (NBS) China’s coal output was standing at 334.1 million tonnes last month, down from 335.24 million tonnes during August and 0.9% lower from the prior year.

According to the statistics provided by NBS, the average output during September was 11.14 million tonnes a day.

Earlier last week the National Energy Administration (NEA) said that the current daily output has jumped to over 11.2 million tonnes, accentuating the slow pace of injecting supplies to market.

Head of Asia Pacific Power and Renewables Research at Wood Mackenzie Alex Whitworth “The Chinese government is losing the battle to control soaring coal prices. 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 further reported an increase of 6.8% in electricity consumption during September compared to a year earlier and spiked by 12.9% during the first nine months of the year.

The disparity in supply and demand pushed Chinese coal futures to a new record on Monday. The most actively traded contract — Coal for January delivery — jumped by the upper trading limit of 11% on Monday to reach 1,829 yuan ($284.15) a tonne, reiterating the expectation that the coal supply crunch is not going anywhere soon.

China took a significant step with regards to power reform last week by permitting coal-fired power plants to pass on increased costs to some consumers, in order to encourage power plants to produce more electricity and to ease their profitability pressures.

Whitworth said, “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.”

The story was filed by the News Desk.
The Desk can be reached at info@thecorrespondent.com.pk.

The story was filed by the News Desk. The Desk can be reached at info@thecorrespondent.com.pk.

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