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China’s biggest coal miners have pledged to increase production as the country struggles with a deepening power crisis that is threatening to hit economic growth.
Central government officials this week told state-owned energy companies to secure supplies for this winter at all costs, with the instruction reported to have come directly from Han Zheng, the vice-premier who oversees the sector.
In response, the country’s big coal producers are now pledging to increase output as winter approaches. Coal-fired power accounts for around 70 per cent of China’s electricity.
On its official WeChat account, China Energy Investment Corp, the country’s largest coal miner, said it would “make every effort” to increase supply and would “strictly implement the country’s request to ensure supplies”.
Wang Xiangxi, who chairs the company, said it would “strive to achieve full production and exert all efforts to increase supply” in the fourth quarter.
Meanwhile, State Power Investment Corp said its Inner Mongolian coal mining company would “go all out” to ensure supply of coal to the north-east of China, to guarantee power generation.
“Use of coal for power generation and heating is very important for people’s livelihoods,” it said.
Energy prices have surged across the globe as supplies of natural gas and thermal coal, burnt in power stations to generate electricity as well as in heating, have struggled to keep up with demand while big economies have revved up after the pandemic. Europe and Asia are facing increased competition to secure supplies ahead of the winter.
The imbalance has been particularly acute in China, where power rationing is threatening to worsen a loss of momentum across the country’s economy. Earlier this week Goldman Sachs cut its 2021 China growth forecast to 7.8 per cent from 8.2 per cent, citing “significant downside pressures” from energy shortages.
However, analysts and coal traders were sceptical that production could be increased quickly enough to make a difference this winter, with some saying power rationing was the only way to bring the market in to balance. “It may take some time to see the impact,” said UBS economist Ning Zhang.
China has struggled to boost domestic coal supply to meet increased demand for electricity because tough new safety measures introduced after a series of deadly accidents and environmental checks.
The country’s power demand has increased by almost 15 per cent this year, according to Morgan Stanley, but its domestic coal supply is up just 5 per cent year-to-date.
At the same time, China has not been able to fall back on supply from overseas. It has been unable to buy coal from Australia coal because of an import ban while supplies from Indonesia, China’s biggest overseas coal supplier, has been hampered by persistent rainfall.
Rail and port constraints have affected imports from Russia and South Africa, two other critical suppliers. Between January and August, UBS estimates China’s imports were down 10.3 per cent year on year.
On top of that, spiralling gas prices have forced utility companies in North East Asia and Europe to switch to coal, increasing competition for supplies. Bloomberg reported on Friday that one German power plant had been closed after it ran out of coal.
In China, domestic coal prices have risen sharply over the summer, climbing from Rmb950 a tonne in June to Rmb1,100 in August to over Rmb1,300 in September with some trades conducted at Rmb1,700 a tonne, or $260, this week, according to Argus Media, a price reporting agency.
“Coal remains China’s energy backstop. But this week’s saga demonstrates it’s not just an environmentally unsustainable backstop — it’s also insufficient to guarantee energy security,” said Trivium China, a consultancy.