CORRECTED-UPDATE 2-Winter chill keeps China’s coal prices high, power crunch stokes inflation

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(Security Investment, a subsidiary of Shanxi Luan Mining Group, corrects and clarifies paragraph 22)

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*China’s Meteorological Office forecast a sharp drop in temperature

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* Coal prices, increased demand due to increase in imports

* Higher electricity prices feeding into factory gate inflation

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BEIJING, Oct 14 (Businesshala) – China’s coal prices neared a record high on Thursday as cold weather swept through the country’s north and power plants stocked up on fuel to ease an energy crisis that loomed large. The unprecedented factory gate is fueling inflation.

A widespread power crisis in China, affecting at least 17 sectors – led to coal shortages, record high fuel prices and a rapid rise in post-pandemic industrial demand as it shifts to green fuels Due to which production has been disrupted in many factories.

Rising energy prices sent producer prices in September to their highest level in at least 25 years, up 10.7 percent from a year earlier, data showed on Thursday.

The situation is likely to worsen due to severe cold.

China’s National Meteorological Center has forecast that strong winds could knock the average temperature up to 14 degrees Celsius in large parts of the country this week.

The three northeastern provinces of Jilin, Heilongjiang and Liaoning – hit hardest by power shortages last month – and many regions of northern China, including Inner Mongolia and Gansu, have begun heating up in winter, which is mainly fueled by coal. . Colder weather than usual.

Beijing has taken a number of measures to stem the rise in coal prices, including increasing domestic coal production, rationing electricity in factories and ensuring that energy supplies for the warm winter season will be ensured.

boost coal supply

China has approved 153 coal mines for capacity expansion, which is expected to add 55 million tonnes of coal in the fourth quarter.

According to an official of China’s National Energy Administration on Wednesday, daily coal production has exceeded 11.2 million tonnes since February.

But floods in top coal producer Shanxi have tarnished the supply outlook, with analysts expecting power shortages and rationing to continue into early next year.

Banks are giving loans to coal mines to increase production. China’s top coal mining hub Shanxi Coking Coal Group has received a 1 billion yuan ($155.30 million) bank loan to restart operations from the floods, according to China’s central bank-backed newspaper.

“The supply of coal in Northeast China is very tight. Stocks in power plants in the region rose to levels of only a third in previous years,” said a Jilin-based coal trader, but the current level is much higher than two weeks ago when some power plants were seeing close to zero inventory. were.

The NEA official said the total dispatchable coal inventory in China could support about 15 days of utilization.

China is also expanding imports of coal and Businesshala reported last week that it was freeing Australian coal from bonded storage after a nearly year-long unofficial import ban on the fuel.

On Thursday, the Russian news agency TASS reported that China asked Russia to double its electricity supply in November-December.

electricity price liberalization

Earlier this week, China, in its boldest move in a decade-long power sector reform, said it would allow coal-fired electricity prices to fluctuate up to 20% above base levels, allowing power plants to increase production. will help in overcoming the high costs of For commercial and industrial end users.

This has raised hopes among some analysts that it will encourage power producers to ramp up production.

However, others believe it still won’t make up for the high cost of coal.

Efforts to restore electricity supply in the country “rely much more on administrative pressure and orders than on economic incentives to power plants,” said lead analyst Laurie Myliwirta of the Center for Research on Energy and Clean Air in Helsinki.

“At current coal prices, the tariff hike allowed by the broader price band is a modest sweetener.” “At 1,500 yuan per ton, fuel costs are 0.6 to 0.7 yuan per kilowatt hour, while the benchmark is typically less than 0.4 yuan per unit,” Myllyvirta said.

As Beijing reiterates that it will not lower mining safety standards while boosting coal production, coal miners are scrambling to add investments to ensure safety in the mines, potentially driving up coal prices. and increasing.

A subsidiary of Shanxi Luan Mining Group announced on Thursday that it will raise safety standards at the mines, reducing its profitability by 400-500 million yuan in 2021.

In a sign that consumer inflation is not indefinitely immune to broader price pressures, Foshan Haitian, China’s largest producer of soy sauce, said this week that prices rose by up to 7% from October 25 due to rising raw material costs. plan to do. , transportation and energy.

Beijing was trying to reduce its reliance on polluting coal power in favor of clean wind, solar and hydroelectric power.

“Making sure that people are warm and keep business running – that’s obvious, of course you need to. Even as an environmentalist you don’t want to get into a situation where you’re going through climate change.” take the risk of turning society against us,” said Dmitry de Boer, chief China representative of European environmental consultancy ClientEarth. “But that should be coupled with deploying renewable energy as soon as possible, to avoid similar situations in the future.”

The most active January Zhengzhou thermal coal futures closed 3.36% higher at 1,615.8 yuan per tonne on Thursday. The contract was trading near record levels on Wednesday and is up over 200% so far.

($1 = 6.4392 Chinese Yuan)

Reporting by Muyu Xu and Shivani Singh in Beijing and David Stanway in Kunming; Editing by Lincoln Feast and Jacqueline Wong

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