It’s a case of when it rains, it pours for China’s beleaguered national grid at the moment, something that is having a clear spill-over effect onto the dry bulk trades.
Facing acute energy shortages that have seen rolling power outages across the country for nearly a month, Beijing demanded last week that the three biggest coal producing provinces — Inner Mongolia, Shanxi, and Shaanxi – raise output. No sooner had the directive gone out however than floods swept through Shanxi, which lies just to the southwest of the capital, forcing the shuttering a tenth of the mines in the country’s most important source of coal.
Shanxi has produced 30% of China’s supply of the fuel so far this year, with coal accounting for just over 70% of the republic’s electricity generation. The dire weather has continued today with many chemical factories also forced to close in recent days.
Coal futures on the Zhengzhou Commodity Exchange rose 12% Monday to close at a record 1,408.2 yuan ($218.76) a ton. Spot prices are even higher, with 5,500 kilocalorie coal in Qinhuangdao at about 1,900 yuan a ton now.
China could face a coal supply gap of 30m to 40m tons in the fourth quarter, Citic Securities analysts stated in a recent eport. A shortage of the fuel could cut industrial power use by 10% to 15% in November and December, which would potentially translate into a 30% slowdown in activity in the most energy-intensive sectors like steel, chemicals and cement-making, according to UBS.
Multiple reports over the past week show that China’s desperation for coal has seen it partially ease its year-long ban on Australian coal with tons of landed coal being moved from bonded storage at Chines ports. While this does not amount to an official policy U-turn from Beijing it underlines just how short coal reserves are.
Meanwhile, in neighbouring India the coal shortages continue to hog many headlines in the mainstream press.
Local reports suggest as many as 20 thermal coal plants have been forced to close down in recent days, hampering power generation in many states including Punjab, Rajasthan, Delhi and Andhra Pradesh. India relies on coal for a similar 70+% of its electricity generation like China.
The energy crunch is being felt in many corners of the world, with Europeans, for instance, facing vastly inflated utility bills this autumn while in Lebanon there was no centrally generated electricity over the weekend after fuel shortages forced its two largest power stations to shut down.