BEIJING — China’s coal shortage is easing thanks to new government policies, the Commonwealth Bank of Australia said in a note Tuesday.
According to the report, the number of Chinese provinces with significant power shortages fell to two in mid-October — down from 18 at the start of the month. The bank said that’s based on a shortfall in supply versus demand of more than 10%.
“The number of coal power plants with dangerously low coal stockpiles (less than 7 days) has also decreased by 90% in the same time frame,” the analysts said.
China’s coal shortage worsened in September, which prompted local authorities to abruptly announce power cuts for many factories. As a result, factory production dropped, prompting several economists to reduce their forecasts for GDP growth.
The official Purchasing Managers’ Index, a measure of manufacturing activity, fell into contraction territory in September and October. Third-quarter GDP came in weaker than analysts expected, and many banks had already trimmed their full-year growth forecasts.
However, in the weeks since, Chinese authorities have sought to address the coal shortage with measures ranging from addressing speculation in coal futures to allowing more production of coal. That’s despite pressure to meet targets for reducing carbon emissions — which the national economic planning agency called out 20 regions for failing to meet in August.
Chinese authorities intervene
The immediacy of the power shortage has prompted authorities to take a different approach on coal development to ensure energy supply.
In mid-October, the People’s Bank of China said financial institutions shouldn’t “blindly” cut off loans for coal projects, according to a CNBC translation of the Mandarin-language comments.
Around the same time, China’s State Administration of Coal Mine Safety said that national coal production can likely increase by about 600 tons a day, for total production of 55 million tons in the fourth quarter.
China also bought coal to fill the shortfall. The country’s imports of the fossil fuel jumped 76% in September from a year ago.
Imports of thermal coal, the primary fuel for electricity production, have climbed — particularly from Russia and Indonesia.
Limiting coal price speculation
Thermal coal futures traded on the Zhengzhou Commodity Exchange nearly tripled from Dec. 2020 through Oct. 19. But since hitting a record high of 1,982 yuan ($310) per metric ton then, thermal coal prices have plunged by more than 50%, according to Wind Information.
Since the state sets the price of electricity in China, electricity producers in China have run into operational difficulties due to a surge in costs from soaring coal prices.
China’s national economic planner said in mid-October it would allow the market to play a greater role in setting the electricity price, and repeatedly said over the last few weeks that it would crack down on speculation in coal prices.