Many Chinese provinces have initiated ‘dual control’ measures through curbs on energy consumption and power rationing since May’21. The power supply issues in China have further intensified in Sept’21.
According to provisional statistics, 16 Chinese provinces have introduced electricity curtailment measures of varying intensity. This was mainly because of high coal prices and the dual control policy. Market participants expect power consumption in the fourth quarter of CY’21 will remain tight in some areas due to limited supply.
Coal prices since the beginning of this year have been surging with thermal coal, coking coal and coke futures touching new highs. Coal supply in China is very tight at present with limited portside inventories amidst robust downstream demand in the peak season. Mongolian coal remained affected by the Covid epidemic and certain restrictions on customs clearance, which exacerbated the coal supply and demand gap.
In 2021, the National Development and Reform Commission began implementing a quarterly assessment and a “red, yellow, and green” warning mechanism for dual control of energy consumption.
On 16 Sept’21, the “Plan for Improving the Dual Control System of Energy Consumption Intensity and Total Volume” was released for implementation.
To comply with the policy guidelines, various provinces introduced a set of measures to reduce energy consumption by restricting power usage of high-energy consuming enterprises, increasing electricity prices, and limiting the time period of power consumption.
Tighter policies, power supply shortage, and expansion of the scope of production cut restrictions in various regions limited production and resulted in mills going under shutdown.
According to recent data, the operating rate of high-energy consuming industries fell further last week (September 20-26). The operating rate of blast furnaces and cement mills fell significantly.
Xiong Yuan, chief macro analyst at Guosheng Securities, believes that short-term policies may strengthen the balance between price stabilisation and supply and dual-carbon targets, and there will be pre-adjustment and fine-tuning, but the actual effect is yet to be seen. Power consumption is expected to remain tight in the fourth quarter, and power cuts in some areas may increase.
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