Despite Ramping Up Coal Production, China May Still Face a Power Crunch This Summer

China may face further power shortages this summer despite increasing domestic coal output, as most of the new supply is of lower quality than before and burns more quickly in power stations. China relies on coal for 60% of its electricity production, and is the largest consumer of coal in the world. Last year, low domestic output led to a weeks long power crunch that disrupted manufacturing.

Since then, the government has ordered to boost output to record levels and put a price cap on coal to make it more affordable for power generators.

However, the price cap is encouraging producers to value quantity over quality, leaving power generators needing growing volumes of coal as they look to raise output.

For miners, extracting high quality coal does not make much sense as margins are low due to price caps. Therefore, they prioritize producing large volumes to fulfill government targets.

Thermal coal with values above 5,500 kilocalories per kilogram is typically considered high heating value coal.

Meanwhile, power plants also favor low quality products as they are cheaper and help them reduce loss from electricity generation.

China is the world’s biggest coal and LNG importer, but relies on domestic fuels for power generation. The government controls local power and fuel prices and domestic coal production to ensure that affordable power is available.

In response to last year’s power crunch, coal miners boosted output to record levels, increasing inventories at China’s utilities by 50 million tonnes from the year before.

But most of the output is of medium and low heating-value coal that power plants need to burn more of to generate the same amount of electricity as from higher heating-value coal.

Some utilities raised coal use by as much as 15% but power generation levels stayed almost the same.

Industrial activity has been picking up after recent pandemic lockdowns. Higher proportion of lower quality coal means there may not be enough coal supply on hand to meet substantially higher power needs.

China Electric Council projects that several regions would experience tight power supply in peak hours in summer.

The problem of low volume of higher quality coal has been exacerbated by a change in China’s coal imports since Beijing placed an unofficial ban on imports from high-grade coal producer Australia in late 2020, and increased purchases from low-grade coal suppliers in Indonesia and Mongolia.

While Indonesia produces some high heating-value coal, it’s more expensive and mainly sold to Europe.

Increased coal imports by European buyers looking to replace Russian coal and gas supplies have also reduced high-grade coal supplies and pushed international coal prices well above domestic Chinese prices.

Beijing has also encouraged hydro and renewable power generators to produce as much as they can so that the burn rate of coal supplies can slow down.

Need to access the insight?

Start your 7-day free trial now

Need to access the insight?

Start your 7-day free trial now

Need to access the insight?

Start your 7-day free trial now

Do you need to access special insights on this matter?

Start your 7-day free trial  and become a member today

Subscribe to Top Insights Today

Subscribe to Executive Newsletter Top Insights Today

The Executive Newsletter -Top Insights Today- puts global business events in perspective through special insights

Join the ranks of global executives and subscribe to Top Insights Today

Top Insights Today covers insights on energy, clean-tech, oil&gas, mining, rare earths, defense, aviation, infrastructure, manufacturing, electrical vehicles, big-tech, finance and politics of business

By clicking subscribe you agree to our privacy and cookie policy and terms and conditions of use.

Read more insights

Foreign Policy to be the Focal Point of EU Leaders Meeting

US Trade Representative Katherine Tai’s trade policy review with China has gained some negative reactions from some US businesses. Some industries are concerned that the plan does not offer a specific framework for negotiations and timing. Tai revealed her plan on Monday, saying she would hold meetings with Chinese officials over their failure to meet former President Trump’s Phase 1 trade deal, and start a process to exclude some Chinese imports from tariffs. 

France’s Faurecia Opens $147 Million Cars Seats, Interiors Plant in Mexico

French car parts maker Faurecia opened a $147 million plant in Mexico to manufacture car seats and interiors, the latest in a series of moves by auto industry to expand presence in North America. Faurecia said the plant in northern Mexican state of Nueva Leon will serve clients including Volvo and Stellantis, and produce more than 2 million vehicles’ worth of car seats a year by 2025. It added that capacity will be doubled by the end of 2023 to reach that goal. It has not yet determined a timeline for production of interiors but aims to make 720,000 vehicles’ worth by 2024.

Serbia Calls Off Rio Tinto’s Lithium Project Fearing Environmental Backlash

Serbia revoked Rio Tinto’s lithium project in the country’s Jadar region following environmental concerns. The Anglo-Australian mining giant has been aiming to become Europe’s largest supplier of lithium, a key electric vehicle battery material. The decision came as Serbian government feared a public backlash going into April elections. 

Stay informed

error: This content is protected !!