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China Coal Prices Soared to Record Highs

China has been struggling with a rising energy crisis brought on by shortages and record-high prices for the fuel

China Coal Prices Soared to Record Highs, winter Adds to Energy Woes

The energy crisis of China surged to record highs on Friday as cold weather swept into much of the country, which resulted in power plants scrambled to stockpile coal, which pushed the prices of the record highs. This week, the electricity demand to heat offices and homes will likely climb as strong winds move down from northern China. In addition, weather forecasters foresee average temperatures in some eastern and central regions could fall by as more as sixteen degrees Celsius in the upcoming two to three days.

High-fuel prices, shortages of coal, and increasing post-COVID-19 pandemic industrial demand spurred broad power shortages in the second-largest economy of the world. Rationing has been in place in around seventeen of mainland Chinese over thirty regions since September, due to which some factories suspend production and it results in disrupt supply chains. Early on Friday, the most active January thermal coal of Zhengzhou futures rose to a record high of $259.42 (1669.40 yuan) per ton. Moreover, the contract sored over two hundred percent year to date.

Worst-Hit Chinese Province by Power

Liaoning, Jilin, and Heilongjiang are among the worst-hit provinces of China by the power shortages last month – and many regions in northern China, including Gansu and Mongolia, began winter heating, which largely fueled with coal to deal with colder-than-normal weather. Beijing, the Chinese capital, took some measures to contain coal price increase, including power cutting to power-hungry industries and some factories during peak demand period and raising domestic coal production. In addition, it frequently guarantees users about the secured energy supplies for the winter heating season.

China Power Rationing Map

However, power shortages are expected to continue into the start of the following year, with analysts and traders predicting a twelve percent fall in industrial power consumption in the 4th quarter as coal supplies fall short and domestic governments prioritize residential users. Chinese provinces have variable degrees of power rationing in place.

China Coal Prices Soared to Record Highs
China Coal Prices Soared to Record Highs
Source: Web

Earlier this week, China, in its exceptional move in a decades-long power sector reform, said that it would allow coal-fired power prices to fluctuate by around twenty percent from base levels from 15th October, enabling power plants to pass on more of the high costs of generation to industrial and commercial end-users.

Cement, aluminum, steel, and chemical producers expected to face more and higher volatile power costs under the recent policy, pressuring profit margins. On Thursday, statistics revealed that factory-gate inflation in September hit a record high.

Temperatures in northern China tumbled below normal, which boosted heating demand amid power pinch

China Coal Prices Soared to Record Highs
Beijing and north China temperatures fell below normal this week, adding more strain to the taxed power system of China
Source: Refinitiv

China intends to be carbon neutral by 2060, and its capital is trying to cut its reliance on polluting coal power in favor of the cleaner wind, hydro and solar. However, coal is likely to provide the bulk of its electricity needs for some time. China is not only the country fighting with power supplies, which led to blackouts and power shortages in some nations. Furthermore, the crisis emphasized the difficulty in cutting the dependency of the international economy on fossil fuels as global leaders aim to revive efforts to combat climate change at talks next month in Glasgow.

According to state-run news agency Xinhua, at the Russian Energy Week International Forum, Vice Premier Han Zheng said in a video message that China will struggle to achieve carbon peaks by 2030. Han Zheng also said that Russia and China are vital forces leading the energy transition, and they should collaborate and guarantee the smooth development of nuclear power projects and major oil & gas pipelines.

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