Heavy rains have forced the closure of 60 coal mines in Shanxi Province, China’s largest coal mining center, according to a statement released by the provincial government’s Emergency Management Office on Saturday. The province is home to a quarter of the country’s coal production.
Neighboring Shaanxi Province, which ranks third in the country for charcoal production, also reported heavy rains and mudslides that affected local mine operations, according to the Securities Times, a nationally owned financial newspaper. in the state.
The price of futures contracts on thermal coal, which is primarily used to generate electricity, hit all-time highs Monday on the Zhengzhou Commodity Exchange, up 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 accounted for nearly 60% of China’s total energy consumption.
Energy shortages have spread to 20 Chinese provinces in recent weeks, forcing the government to ration electricity at peak times and some factories to halt production. This is hurting industrial production and weighing on China’s economic outlook.
Why is China lacking in power?
The electricity shortage is the result of a series of factors that have boosted demand and reduced supply. China’s post-pandemic construction boom has been heavily reliant on fossil fuels, while a nationwide push to cut carbon emissions led hundreds of coal mines to close or cut production earlier this year, driving up coal prices. Restrictions on coal from Australia’s main supplier and weather issues have exacerbated the problem.
A hotter-than-usual summer prompted people to use a record amount of electricity in July, according to China’s National Energy Administration. The agency added that overall electricity consumption from January to August was up 14% from the same period last year. But renewable energy sources, such as hydropower, have been hampered by drought in recent months.
“Power cuts in China will exacerbate economic tensions, weighing on GDP growth for 2022,” Moody’s analysts said Monday. They added that “the risks to the GDP forecast could be greater as disruptions to production and supply chains spill over.”
The problems prompted China’s central government on Friday to allow coal-fired power plants to raise the price of electricity by up to 20 percent.
“Since the beginning of this year, energy prices on the international market have risen sharply and the domestic supply of electricity and coal has remained limited,” said the Council of State Affairs, the cabinet of the country, in a press release. “These factors have led to blackouts in some places, affecting normal economic operations and the lives of residents. “
Power plants in China were unwilling to increase production due to the high cost of coal. And since Beijing controls the cost of electricity, producers could not simply increase their prices without the green light from the government.
The government is taking further steps to alleviate the crisis. Authorities in Inner Mongolia, China’s second-largest coal-producing province, also on Friday asked 72 mines to increase production by 98.4 million metric tons, equivalent to about 30 percent of monthly coal production. from China.
The energy problem may soon take its toll on consumers in other ways, such as the tangle of supply chains during the upcoming holiday shopping season. The city of Yiwu in eastern Zhejiang province – a major hub for e-commerce – is struggling with widespread power outages, according to the Shanghai-based IT Times.
The newspaper suggested that shortages and outages in the city, which is the world’s largest wholesale market for cookware, toys, electronics and other goods, could dampen the annual shopping boom of Singles Day in China later this year. The event regularly brings in tens of billions of dollars in sales to major Chinese retailers each year.