China’s Coal Supply Crisis Means High Prices, Blackouts

China’s ban on Australian Coal Supply Crisis. After months of restricting imports after Australia called for an international investigation into the origins of the coronavirus that causes COVID-19, which was first detected in China, Beijing announced a ban on Australian coal imports on Dec. 14.

China’s Coal Supply Crisis Means High Prices, Blackouts

China’s Coal Supply Crisis Means High Prices, Blackouts : As the cost of coal spikes during China’s severely cold winter, what is an economic and uncomfortable hardship for many citizens could turn into a hot political problem for one man: President Xi Jinping.

China’s coal prices rose just as temperatures dropped in December, when demand was already surging because of China’s economic recovery from the coronavirus pandemic. Fossil fuels, mostly coal, provide nearly 70% of China’s power.

But even those with money to burn couldn’t buy coal, according to local media reports, and in a nation where thermal coal fuels electrical power plants, winter’s darkness has taken on new depths.

Thermal coal, also known as “steaming coal” or just “coal,” “differs from coking coal, which has a higher energy content and is chiefly used in metal making rather than electricity production,” according to Robeco, an asset management firm.

Power cuts and outages began hitting swathes of China in early December, dimming even first-tier cities such as Beijing and Shanghai. Hunan, Jiangxi and other industry-driven provinces imposed mandatory “power-saving initiatives” for the “orderly use of electricity.”

In Zhejiang province, an economic powerhouse, the city of Yiwu’s “power restriction orders” meant local enterprises had electricity for one of every five days.

Several factors are at play, among them Beijing’s reduction of foreign coal to protect domestic production capacity and a crackdown on corruption in the domestic coal industry that has unsettled provincial and local governments, stirring up anti-Xi sentiment.

Given that China is the world’s largest importer of coal, the result is insufficient coal stocks, a flickering power supply and blow to Xi’s prestige, even though Zhao Chenxin, secretary general of the National Development and Reform Commission, which steers energy policy, told citizens in December, “In general, please believe that our ability to ensure stable energy supply is not a problem.”

In 2019, China’s coal production exceeded 3.745 billion metric tons, nearly half of the world’s total production. It is the world’s top coal producer, and Inner Mongolia accounts for more than 1 billion metric tons, making it the top-producing province.

The government’s target price for domestic coal is in the range of $77-$88 per metric ton, according to the International Energy Agency (IEA).

By Dec. 4, 2020, coal cost $99.23 a metric ton, an increase of 38% since the price fell to $72 in late April and early May, during the worst of the pandemic, according to Reuters.

While the price may dip because of reduced demand during the Feb. 12-18 Lunar New Year holiday and slightly warming weather, analysts expect the price to continue rising after the holiday because of the double whammy of increased demand and decreased inventory, according to Xinhua.

China’s ban on Australian Coal Supply Crisis . After months of restricting imports after Australia called for an international investigation into the origins of the coronavirus that causes COVID-19, which was first detected in China, Beijing announced a ban on Australian coal imports on Dec. 14.

A Wall Street Journal analysis on Feb. 10 said, “Buyers in China have had to pay steep premiums for imports from farther afield, on top of prices that have risen 84% since midyear.” 

The China Coal Transportation and Distribution Association, which represents importers, said, “It’s been hard to replenish low coal inventory and shortages, while demand is unabated.”

China imported between 70 million and 80 million metric tons of Australian coal annually, according to the General Administration of Customs of China. China consumes about 4 billion metric tons of coal a year.

Tung Li-wen, CEO of the Foundation on Asia-Pacific Peace Studies, said China’s coal shortage is the result of internal issues rather than import restrictions.

“Coal imported from Australia is accounting for less than 2% of China’s coal market, and Australia’s coal is not key in the Chinese coal market. More importantly, China itself is the largest producer and has the largest coal reserves,” he told VOA.

“Shanxi ranked first in China’s coal production 10 years ago, as did Inner Mongolia in the past 10 years,” he said. “Even these two places are saying they have a shortage of coal, so this is not a purely economic problem.”

Tung said the Chinese government’s crackdown on corruption in the coal industry has also made Shanxi and Inner Mongolia “hard-hit areas.”

The Inner Mongolia crackdown on corruption in the coal industry began in January 2020, and investigators said they were looking back as far as 2000.

Local governments, resentful of interference from provincial and national higher-ups, set about frosting Xi’s image.

Wang Chih-sheng, secretary general of China Asia-Pacific Elite Exchange Association, said the current cutback on electricity have made many people suspect Beijing is losing control over local governments who are “marking their territory and declaring autonomy.”

That would give anti-Xi groups an opportunity to make Xi look bad during this year’s Two Sessions in March, the annual plenary sessions of the National People’s Congress and the National Committee of the Chinese People’s Political Consultative Conference, the two organizations responsible for making national-level political decisions.

“The goal may not be to bring down Xi in one shot, but if they can take advantage of China’s energy or electricity crises, and then further weaken Xi’s political credibility, or cause some unrest to come down on Xi’s political groups, I think that’s probably what some people expect,” Wang said. “It is a blow to Xi’s own political prestige at a certain level.”

Luo Cing-Sheng, CEO of Taiwan International Strategy Society, said that the anti-Xi groups may use this opportunity to express their dissatisfaction.

“They would just resist for a bit to teach Xi a lesson,” he said. “Basically, it is a bargaining process.” 

Originally published at Voa news