China’s coal shortage shock has been softened by a series of aggressive policies by the Beijing government, the Commonwealth Bank of Australia said in a recent report.
China’s coal inventories flourish
By mid-October, the number of Chinese provinces with severe power shortages had dropped to two, according to a new report by the Commonwealth Bank of Australia. At the beginning of the month, the country of billions of people with a total of 18 provinces fell into a shortage of electricity.
“The number of thermal power plants with very low coal inventories (under 7 days) also fell by 90% in the same time frame,” added analysts at Commonwealth Bank of Australia.
In a statement last weekend, China’s National Development and Reform Commission (NDRC) also signaled the same. Specifically, the agency said: “For many consecutive days, the average daily coal production has reached more than 11.5 million tons, at times peaked at 11.72 million tons.”
That helps the total amount of coal inventories at China’s power plants increase to 106 million tons, 28 million tons higher than at the end of September. With this volume, factories can safely produce electricity in 19 years. consecutive days, the NDRC said.
Notably, the daily amount of coal supplied to key coal-fired power plants has reached 8.32 million tons, the highest level in history, Reuters emphasized.
China’s coal shortage has worsened since early September, forcing many local governments to suddenly announce cuts to industrial plants.
As a result, the industrial output of factories declined, causing 10 large banks such as Morgan Stanley, Bank of America, Goldman Sachs, etc. to lower their forecasts for China’s economic growth in 2021.
Manufacturing PMI, a measure of manufacturing activity in countries, fell below the 50-point threshold in September and October. China’s third-quarter GDP grew by 4.9% year-on-year, low. significantly higher than the 7.9% growth in the second quarter and weaker than economists expected.
Over the past two months, Chinese authorities have tried to tackle the coal shortage with a variety of measures, from cracking down on speculation in coal futures prices to urging mines to increase output.
The government intervened strongly
In early October, the China Banking and Insurance Regulatory Commission urged financial institutions to give priority to qualified mining companies and power generation plants. In order to stabilize prices in the market, financial institutions are also prohibited from lending capital for the purpose of speculating on certain commodities such as coal, steel and other metals.
By mid-October, the People’s Bank of China (PBoC) urged commercial banks not to “blindly” cut loans for coal mining projects.
At the same time, the State Administration of Coal Mine Safety announced that China’s coal production could increase by about 600 tons/day, the total output in the final quarter of 2021 could reach 55 million tons.
In addition, Chinese enterprises also boosted purchases from abroad to offset domestic coal supply. Compared to the same period last year, China’s coal imports increased by 76% in September this year. Russia and Indonesia were China’s two top coal suppliers during this period.
Bloomberg sources said that China even bought brown coal (or lignite coal) from Indonesia. Brown coal is known as the dirtiest coal in the world, and is often used to blend with more expensive coals.
Last weekend, the NDRC also set up an online platform to monitor the performance of long-term coal contracts signed between coal miners and downstream customers. The system will officially launch in early November.
Thanks to Beijing’s interventions, the coal price in the market has begun to cool down. During the period from December 2020 to October 19, 2021, the price of thermal coal futures on the Zhengzhou Commodity Exchange increased nearly three times.
However, since October 19, the price of thermal coal in China has plunged more than 50%, according to Wind Information. If supply continues to improve, thermal coal futures prices may fall even further.
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