Sunday, October 17, 2021

Coal prices in China hit record high as flooding risks coal supply

Coal prices in China surged to a record as key mining regions in Northern China suffered flooding, resulting in difficulties to boost supply amid an escalating energy crisis.

 

According to media reports, floods closed 60 of the 682 coal mines in northern Shanxi province, country’s biggest coal-producing region in recent days, though some sites are now slowly resuming operations. Two mines in Shaanxi province have been impacted by heavy rainfall. Ensuring coal supply has become a top priority in Beijing even as the country plans for a carbon-neutral future.

Premier Li Keqiang stressed the importance of energy security to China’s continued development in a speech released Monday, in which he reiterated the country’s plans to keep investing in coal, at least in the near term. Coal accounts for nearly 70% of China’s power generation. Prices have soared this year as mine output failed to keep up with surging post-pandemic demand, depleting inventories. Shortages and high prices have led to power cuts to factories in most of the country as the government prioritizes supplies for home heating in the winter.

China has taken drastic steps in recent weeks to alleviate the situation, including telling miners to boost output, and allowing power prices to rise to encourage generators to produce more electricity.  On Tuesday, the National Development and Reform Commission (NDRC) said it will allow coal-fired power plants to charge some customers market-driven prices for electricity, as a worsening energy crisis persuaded authorities to rush through policy changes in the power sector. To help power companies pass on the high costs of coal, the NDRC said that all electricity generated by coal-fired plants would be priced via market trading “in an orderly manner” from Oct. 15.

It also instructed commercial and industrial users to buy direct from the market or via agents over the grid “as soon as possible”. Pushing all industrial and commercial users to the power exchanges and allowing prices to be set by the market is expected to encourage loss-making generators to increase output. However, experts warn that this comes with a further rise in price pressures, as power companies can now pass on higher input costs to their commercial and industrial customers stoking inflationary risks.

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