Amid the rapid economic recovery post-Covid-19 restriction and soaring summer temperatures recently, China’s electricity consumption has grown by 16% y-o-y during Jan-Jun’21 whereas the country’s power generation has climbed by 14% y-o-y in the first half of this year, officials revealed at a recent press conference.
The average daily coal consumption at key power plants in eight provinces in eastern China shot up to more than 2.2 million tonnes (mn t) — the highest on record — whereas coal inventory at power plants have fallen to 24.2 mn t, the lowest so far.
Key manufacturing centers, including the Guangdong province, Yunnan, Guangxi and the manufacturing hub of Zhejiang have been rationing power supply for over a month now, while restrictions have forced several companies in almost every sector to shut down for a few days per week.
Summer rains typically boost hydro-power generation and reduce reliance on thermal coal. However, heavy rains in several parts of the country this year have hampered its hydro-power generation.
As per market sources, few coal mines in China’s Shaanxi province suspended coal output, while central China’s Henan province said it would suspend shipment of thermal coal to users outside the province, after two railways that deliver coal into the province were disrupted by rainstorm, affecting electricity supply.
Adding to the shortage of domestic thermal coal in China is NDRC’s move to phase out outdated coal capacity. Compared to the 10,000 coal mines in China in 2015, there are about 5,000 at present.
What is China doing to avert the power crisis?
Recently, NDRC directed power plants to maintain a minimum seven-days inventory by 21 July. Power utilities In Shanxi and other provinces have been asked to store coal for at least 15 days, while those in other regions are required to store for over 20 days.
On the supply-side, NDRC has announced release of over 10 mn t of coal from state reserves and has urged coal miners to set up advanced mining capacity and ramp up output. It aims to add almost 110 mnt/year of coal production capacity in H2CY’21 and would build over 120 mn t of coal stockpiles in government deployable reserves and 400 mn t of commercial coal reserve capacity by end-2021.
Imported coal prices to go up further
Though the government has been leaving no stone unturned to meet the daily power requirement, the near-term situation continues to remain grim.
China’s 5,500 NAR thermal coal prices have risen by 73% since Mar’21 and are trending at RMB 1,000/t ($155/t) whereas Indonesia’s 5,800 GAR is at $107/t, FoB basis, making it comparatively a bit cheaper against domestic coal even after adding freights. In fact, the demand for lower-grade Indonesian coal is quite high in China amid domestic supply crunch.
CoalMint believes that no correction is expected in global thermal coal prices amidst surged demand from China in the near-term. Global supply crunch also might last longer-than-expected due to the rising Covid-19 cases in Indonesia, civil unrest in South Africa, and increased demand for Australian coal from Japan, Korea, and Taiwan.
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