"Worst Power Shortage in 10 Years"... China Expands Emergency Measures Amid Coal Supply Crisis (Comprehensive)

Power Emergency Measures Declared in Two-Thirds of China
SCMP: "Chaos in Chinese Manufacturing... Worst Power Shortage in 10 Years"
European Coal Prices Hit 13-Year High... Supply Cuts Due to Price Surge
Impact Also from Australian Coal Import Restrictions and Declining Coal Reserves

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Suhwan] As coal inventories in China have sharply decreased and power supply has been reduced, it has been revealed that the power shortage is becoming severe.

On the 29th, the South China Morning Post (SCMP) reported that the power shortage is worsening as coal inventories, one of the main sources of power supply in China, have decreased.

According to the report, as of the 21st, coal reserves in China amounted to 11.31 million tons. SCMP stated that this is the lowest ever, enough for 15 days of use. Authorities' guidelines require holding at least 20 days' worth of coal during the off-season.

Sinolink Securities predicted that from this month until February next year, China will need at least 1.85 billion tons of coal, and based on current coal inventory forecasts, the stockpile will be about 12-19% less than the amount needed for smooth power supply.

Coal Prices Reach Highest in 13 Years Due to Rebound in Power Demand and Coal Supply Shortage

The global coal supply shortage and the resulting price surge have been cited as major reasons for the decline in power generation in China.

SCMP reported that coal prices surged from 670 yuan per ton in January to 1,100 yuan this month.

[Image source=Reuters Yonhap News]

Bloomberg reported that the London ICE Rotterdam coal futures price, which serves as a benchmark for European coal prices, hit its highest level in 13 years since 2008.

Also, the futures price for thermal coal in Newcastle, Australia, surged more than threefold last year, approaching the record high level of 2008.

On this day, the price of thermal coal futures for power generation on the Zhengzhou Commodity Exchange in China rose 3.8%, marking the third consecutive trading day of intraday record highs.

Sinolink Securities stated that as coal prices surged and power companies' operating profit margins shrank, these companies are reducing power supply.

Supply of Thermal Coal for Power Generation Fails to Meet Demand

It has been revealed that the supply of thermal coal for power generation in China is failing to keep up with demand, exacerbating the power shortage caused by the coal supply shortage.

SCMP reported that the gap between coal inventories and power demand in China began to widen from April.

The International Energy Agency (IEA) stated, "Coal demand is rebounding rapidly due to China's economic recovery."

According to Bloomberg, thermal power generation from the beginning of this year to August increased by 14% compared to last year, but coal production only increased by 4.4%.

Additionally, heavy rains and the COVID-19 pandemic caused temporary shutdowns of coal mines in major coal-producing countries such as Colombia and Indonesia, affecting coal supply.

Bloomberg also reported that major countries' banks have stopped investing in coal mine construction projects in line with climate change policies, which is another factor.

Restrictions on Australian Coal Imports and Decrease in Domestic Coal Reserves Also Impact

Furthermore, with the La Ni?a phenomenon (an abnormal wind flow caused by climate change leading to sea surface temperatures lower than average) expected to cause harsher cold this winter, there is a high possibility of a significant increase in power demand within China.

Earlier, the U.S. National Oceanic and Atmospheric Administration predicted a 70% chance of La Ni?a occurring this winter.

[Image source=AP Yonhap News]

China's coal supply shortage has worsened since October last year when China experienced diplomatic conflicts with Australia and restricted imports of Australian coal.

China had been importing up to 50 million tons of coal annually from Australia.

As diplomatic relations between China and Australia deteriorated over investigations into the origin of COVID-19 in Wuhan last year, China effectively halted imports of Australian coal as part of trade retaliation measures.

China has sought alternative import countries such as Mongolia and Indonesia, but these coals are known to be of lower quality compared to Australian coal, resulting in reduced power generation efficiency.

SCMP quoted experts saying, "Australian coal has an energy calorific value of 5,500 calories per kilogram, but Indonesian coal is only 3,800 calories per kilogram."

Meanwhile, on the 27th, Jilin Province authorities announced plans to increase coal imports from Russia, Indonesia, and Mongolia to prepare for the winter cold.

It is also analyzed that excessive coal mining in domestic coal mines over the past several years has reduced the reserves of high-quality coal, impacting China's coal supply shortage.

Professor Yanhe Hou of the University of Hong Kong said, "Most of the high-quality coal has been mined over the past few years. Currently, most remaining coal is located in deeper areas where mining is more difficult. Typically, this coal has somewhat lower energy calorific value."

SCMP added that corruption investigations into coal mines in the Inner Mongolia region have also affected production volumes at these mines, contributing to the coal shortage.

[Image source=Reuters Yonhap News]

China's Power Shortage Likely to Worsen... "Manufacturing Faces Chaos"

As the imbalance between coal demand and supply worsens in China, concerns are rising that the power shortage will deepen further.

Yesterday, Chinese state media reported that emergency power measures have been issued in more than 20 of the 31 administrative regions within China.

SCMP assessed, "China is experiencing its worst power shortage in 10 years."

The media added, "As emergency measures spread, China's manufacturing sector is falling into chaos."

According to the media, in Shenyang, the capital city of Liaoning Province, as part of emergency measures, many traffic signals were shut down last week.

[Image source=Reuters Yonhap News]

This content was produced with the assistance of AI translation services.