China's Power Shortage Foretells Disaster... Coastal 8 Provinces' Coal Stockpiles at 9.3 Days' Supply

Supply-Demand Imbalance After Ban on Australian Coal... Power Usage Up, Coal Supply Down
Direct Hit to Northeast China's 100 Million Population... Surge in Blackouts, Gas Leaks, and Other Incidents

[Asia Economy Beijing=Special Correspondent Jo Young-shin, Reporter Park Byung-hee] 'As of September 16, coal stockpiles at major power plants in Guangdong Province, China, stand at 2.4 million tons, nearly 60% lower than the same period last year.'

This was reported on the 28th by Caixin, a Chinese economic media outlet, explaining the coal shortage situation in China. Citing a report from China Xindai Securities, Caixin stated that as of the 23rd, coal stockpiles in eight coastal provinces totaled 17.742 million tons, down 8.68% from the previous week. It added that the available coal stockpile only lasts for 9.3 days.

[Image source=EPA Yonhap News]

Caixin described the coal stockpile volume as a microcosm that directly reflects the overall coal supply and demand situation in China, pointing out that the coal supply issue is unlikely to be resolved in the short term.

The National Development and Reform Commission (NDRC) of China reportedly recognized the national power shortage in advance last July and considered measures to expand energy supply, including additional nuclear power plant construction and increased coal production.

◆ A Pitfall Dug by Oneself = Global Times refuted foreign media reports claiming that the ban on Australian coal imports caused China’s power shortage as 'nonsense,' reporting on the 28th that China’s power shortage is merely the result of increased electricity consumption combined with carbon reduction policies. The outlet emphasized that since the ban on Australian coal, China has been importing substitute coal from Indonesia, South Africa, and the United States, and that imported coal accounts for only 10% of China’s total consumption.

In response, Caixin cited data from the National Energy Administration of China, reporting that from January to August, China’s electricity consumption surged by 13.8% year-on-year to 5.47 trillion kWh. During the same period, the operating hours of thermal power generation facilities increased by 9.53% year-on-year to 2,988 hours.

The increase in electricity consumption implies a rise in coal consumption. According to the 2021 first half coal economic operation data released by the China Coal Industry Association, China’s coal consumption in the first half of this year reached 2.1 billion tons, up 10.7% year-on-year. During the same period, coal production by Chinese companies was 1.95 billion tons, increasing only 6.4% year-on-year. Coal imports decreased by 19.7% compared to the same period last year.

Caixin analyzed that China stopped importing Australian coal from October last year and, although it imports coal from alternative countries, actual coal import volumes have stagnated. Caixin pointed out that the power shortage is a result of supply-demand imbalance where coal supply fails to meet demand.

◆ Direct Hit of Power Outages on 100 Million People in the Three Northeastern Provinces = Caixin expressed concern that coal supply this winter is severe, especially warning that the three northeastern provinces of China may face difficulties. It added that serious situations could arise this winter due to coal stock shortages. The population of the three northeastern provinces alone reaches 100 million, raising concerns that they may shiver in the cold this winter. This is the part that worries the Chinese leadership the most.

Incidents and accidents caused by power outages are also occurring one after another. China CCTV reported on the 27th that on the 24th, a sudden power outage caused exhaust gas leakage at a smelting company in Liaoning Province, with 23 employees receiving hospital treatment.

In Shenyang, power outages caused mobile phones to become inoperable and even internet services were interrupted. Traffic lights went out, causing road paralysis, and during the outage, theft incidents occurred where car windows were broken and valuables stolen, according to Chinese media. In Jilin Province, multiple power outages occurred from the 24th to the 26th, causing shops to close early.

Caixin quoted a Liaoning thermal power plant official saying that the NDRC prioritized allocating over 10 million tons of coal to the northeastern region. Caixin explained that the central government is currently formulating coal supply plans centered on people’s livelihoods, and recently, the NDRC issued a mediation letter urging coal companies and power plants to sign medium- to long-term supply contracts.

(Photo by AP Yonhap News)

◆ China’s GDP Red Light, Growth Rate Likely to Decline = As China’s power shortage issue becomes apparent, voices warning of a slowdown in China’s economic growth rate this year have begun to emerge. Factory operations are not smooth, reducing production, which is expected to shrink the overall economy.

According to Bloomberg on the 27th (local time), China International Capital Corporation (CIC) warned that power shortages will reduce China’s economic growth rate by 0.1 to 0.5 percentage points in the third and fourth quarters of this year. CIC predicted that the power shortage will particularly have a significant impact on short-term production, forecasting that the industrial production growth rate in September (year-on-year) will fall to around 4 to 4.5%. China’s industrial production growth rates were 6.4% in July and 5.3% in August.

Nomura Holdings also predicted in a report released on the same day that due to production cuts caused by power shortages, the Purchasing Managers’ Index (PMI) for Jiangsu, Zhejiang, and Guangdong provinces, to be released this week, will fall below 50, indicating economic contraction.

Nomura economist Lu Ting warned, "The impact of China’s power shortage is being ignored by the market as it is overshadowed by Evergrande Group’s liquidity problems," and cautioned that China’s economic growth rate could be lowered further from 7.7%.

Morgan Stanley also forecasted that if the current production cut trend continues, the GDP growth rate in the fourth quarter will decrease by about 1 percentage point.