Heavy rains have forced the closures of 60 coal mines in Shanxi province, China’s largest coal mining hub, according to a statement released Saturday by the provincial government’s Emergency Management Bureau. The province is home to a quarter of the country’s coal production.
The price of thermal coal futures, which is primarily used to generate power, surged to all-time highs Monday on the Zhengzhou Commodity Exchange — up as much as 12% to 1,408 yuan ($219) per metric ton. The price has more than doubled so far this year.
Coal is the main source of energy in China and is widely used for heating, power generation, and steelmaking. Last year, it made up nearly 60% of China’s total energy use.
And the extreme weather hit just as China was attempting to ease power shortages by ramping up coal production and allowing coal-fired power stations to charge more for their electricity.
Why is China short of power?
The power shortage is a result of a range of factors that have boosted demand and reduced supply. China’s post-pandemic construction boom has been heavily reliant on fossil fuels, while a national push to reduce carbon emissions led hundreds of coal mines to shut down or slash production earlier this year — driving coal prices higher. Restrictions on coal from key supplier Australia and weather woes have exacerbated the issue.
A hotter-than-usual summer pushed people to use a record amount of power in July, according to China’s National Energy Administration. The agency added that overall power consumption from January to August grew 14% compared to the same time last year. But renewable energy sources, such as hydropower, have been hobbled by drought in recent months.
“China’s electricity cuts will add to economic stresses, weighing on GDP growth for 2022,” Moody’s analysts said in a Monday report. They added that the “risks to GDP forecasts could be larger as disruptions to production and supply chains feed through.”
Power plants in China had been unwilling to boost production because of the high cost of coal. And since Beijing controls the cost of power, producers couldn’t simply raise their prices without the go-ahead from the government.
The government is taking other steps to ease the crunch. Authorities in Inner Mongolia — China’s second largest coal-producing province — on Friday also asked 72 mines to boost production by 98.4 million metric tons, the equivalent of about 30% of China’s monthly coal production.
The newspaper suggested that shortages and cuts in the city, which is the world’s largest wholesale market for kitchenware, toys, electronics and other goods, could dampen China’s annual Singles Day shopping bonanza later this year. The event regularly brings in tens of billions of dollars in sales for major Chinese retailers every year.