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China’s largest coal miners have promised to increase production as the country struggles with a deepening crisis threatening economic growth.
Central government officials said this week that state-owned energy companies must acquire supplies for this winter at all costs, with the instruction that it came directly from Han Zheng, the vice-premier who oversees the sector.
In response, the country’s major coal producers are now promising to increase production as winter approaches. Coal power accounts for about 70 percent of China’s electricity.
On his official WeChat account, China Energy Investment Corp., the country’s largest coal miner, said it would ‘do everything in its power’ to increase supply and ‘strictly execute the country’s request for security’.
Wang Xiangxi, chairman of the company, said it was “striving to achieve full production in the fourth quarter and make every effort to increase supply”.
Meanwhile, State Power Investment Corp. said its inner Mongolian coal mining company would “let everything down” to secure the supply of coal to northeastern China to ensure power generation.
“The use of coal for power generation and heating is very important for the livelihoods of people,” he said.
Energy prices have risen around the world as supplies of natural gas and thermal coal, burned in power stations to generate electricity as well as for heating, have struggled to keep up with demand, while major economies have improved after the pandemic. Europe and Asia are facing increasing competition to acquire supplies before winter.
The imbalance was particularly sharp in China, where rationing with force threatens to exacerbate a loss of momentum in the country’s economy. Earlier this week, Goldman Sachs reduced its growth forecast for China in 2021 to 7.8 percent from 8.2 percent, citing ‘significant emphasis’ on energy shortages.
However, analysts and coal traders were skeptical that production could be increased fast enough to make a difference this winter, and some say power rationing is the only way to balance the market. “It may take some time to see its impact,” said NBS economist Ning Zhang.
China has struggled to bolster its domestic coal supply to meet the growing demand for electricity as strict new safety measures have been put in place following a series of deadly accidents and environmental investigations.
According to Morgan Stanley, the country’s power demand has increased by almost 15 percent, but its domestic coal supply is rising to 5% annually.
At the same time, China could not fall back on supply from abroad. It was unable to buy coal from Australia due to an import ban, while supplies from Indonesia, the largest coal supplier abroad, were hampered by persistent rainfall.
Rail and port restrictions affected imports from Russia, another supplier. Between January and August, UBS estimates that China’s imports fell 10.3 percent year-on-year.
In addition, rising gas prices have forced utilities in Northeast Asia and Europe to switch to coal, increasing competition for supplies. Bloomberg reported on Friday that one German power station was closed after coal ran out.
In China, domestic coal prices rose sharply during the summer, from Rmb950 per tonne in June to R100m in August to more than R300m in September, with some transactions at Rmb1,700 per tonne, or $ 260, this week. according to Argus Media, a price reporting agency.
‘Coal remains China’s backdrop for energy. But this week’s story shows that not only is it an environmentally friendly backstop – it is also insufficient to guarantee energy security, ‘says Trivium China, a consultant.