The country may soon reach the threshold of its economic pain and re-embracing dirty fuel as winter looms
The latest mining safety campaign began in late 2020 following two devastating mining accidents near Chongqing that killed 39 workers. One result is slowing coal production significantly, such that electricity demand was growing at a record pace in early 2021. The year-on-year growth in domestic coal production from March to August declined by an average of 1.5% this year, even as electricity generation increased. Average 8.9%. The result: a list of power plants declining rapidly as winter warms up. According to data from CQcoal, the average inventory in the seven large eastern provinces was just 12.5 days last week, the lowest since at least 2015 and less than half the fourth quarter average in 2020.
Supply disruptions due to heavy rains in major coal exporter Indonesia and China’s ongoing dispute with Australia, the world’s other major coal exporter, have made matters worse. China effectively banned Australian coal imports in late 2020 as relations deteriorated. China has been able to fill most of the gap by buying from other places, but not completely – imports in the first eight months of the year were still 10% lower than in 2020.
However, now imports are on the rise, as coal plants try to rebuild inventory ahead of the summer season. This has driven up coal prices across Asia – ironically even for Australian coal. This increase is one factor behind the continued March highs of Asian liquefied natural gas futures, which now trade at around $30 per million British thermal units, tripling their levels as recently as May and five times domestic US prices. Guna – itself nears a multi-year high.
As the summer season is about to begin in North Asia, the situation is looking dire. However, there is some reason to think that the rise in prices may soon lose some steam, even if prices are unlikely to return to spring levels. First and foremost, Chinese heavy industrial production growth – and growth in electricity demand – is now rapidly slowing as regulators squeeze the property sector and energy-intensive businesses such as steel to hit climate and energy efficiency targets. . Should China’s property sector really fall apart—a possibility given the slow demolition of giant property giant Evergrande—heavy industrial production would be hit even harder. Crude steel production was down 13.2% year over year in August and power demand was up just 0.2% – a dramatic reversal from double-digit growth just a few months earlier.
Finally, there is the question of Beijing’s pain point over power cuts, which is growing as generators themselves face major losses from high coal prices. Long-term considerations such as hitting climate targets and shifting the economy away from energy-intensive heavy industry clearly carry more weight than in the past, but it is still unclear whether China is truly a coal power.” moment” that could force many small businesses under when the economy is already on shaky ground.
If Asian coal prices remain unbearably high, it is expected that more Chinese coal mining capacity will come back online and begin to ease some of the shortfall. It is great to cut the economy away from coal and heavy industry, but depriving residents of electricity, heat and jobs in the depths of winter does not bode well for a Chinese leader focused on “general prosperity”.
Nathaniel Taplin at [email protected]