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China's power regulator pushes utilities to stockpile coal through Oct for winter

Highlights

Country's power plants grapple with coal shortages amid surging prices

Regulator says coal procurement maximized but inventories recover slowly

Coal consumption falls on power rationing, but is higher year on year

China's coal-fired power plants are facing challenges in coal procurement due to tight domestic supply, high prices in both the domestic and international coal markets, disruptions in shipping due to the recent typhoons and port closures, and strong electricity demand, the country's power regulator China Electricity Council, or CEC, said in a report dated Sept. 27. The CEC said that it had advised the plants to build inventory levels in the key period of October as part of measures to ease the situation.

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The CEC's update comes amid electricity rationing by several Chinese provinces in recent weeks, and power outages in some cities, as utilities tried to conserve fuel stocks and manage demand-supply imbalances.

The report confirmed concerns among market participants that the power shortages have been largely due to declining coal supply and measures to backstop fuels for critical use like residential heating in the winter.

The China Electricity Coal Index (CECI) weekly report issued by the CECI office showed that coal supply at pitheads was still tight because several coal mines stopped production in the absence of firm sale contracts, and the selling price of coal continued to rise despite hitting record high levels, the CEC said.

"In terms of ports, the typhoon continued to have an impact on shipping, while port inventory increased slightly. Sea freight quotations were lowered from the recent high level. However, the current port capacities are still short of meeting the demand, and the shipping volume cannot be effectively increased," the CEC said.

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The CEC said that while coal futures prices continued to rise, the quotations rose after the Mid-Autumn Festival, affected by the holiday demand and the implementation of power rationing in some provinces and cities.

While coal consumption has decreased month on month since several of those measures were implemented, it is still significantly higher than the same period in the previous year, the CEC said. This was in line with market expectations that utilities would deal with much higher demand than in 2020, when the pandemic curbed energy demand.

"In particular, the southern regions such as Guangdong are still experiencing high temperatures, which has increased power demand to a certain extent. In order to ensure the energy security of coal use in winter, power companies continue to buy more and more coal regardless of costs despite their substantial losses, and inventories continue to increase slowly," the CEC said.

It said that power plants were still passively accepting prices driven by their inelastic, rigid demands, and coal prices continued to rise to high levels.

The CEC said that while utilities had increased their coal procurement, the increase was limited and the inventory of power plants was recovering slowly. It said that it recommended several measures to manage the situation, including the usage of the key period of October to increase power plant inventories, establish a sound forecast and early warning mechanism, and focus on power plants with inventories less than seven days.

High coal prices

China's total electricity consumption rose 13.8% over January-August, outpacing an 11.3% increase in industrial power generation over the same period, latest data from the country's top economic planning body, National Development and Reform Commission, showed.

The CEC's index for coal with a heating value of 5,500 kcal/kg was Yuan 1,210/mt on an FOB basis as of Sept. 23, while the index of imported coal was Yuan 1,283/mt during the same period, data from the council showed.

The energy supply and demand imbalance prompted the central government to take measures to curb energy consumption, and prevent a wider energy crisis in the peak winter demand season, industrial participants said.

"This week, the price of imported coal jumped further. Global coal resources are in short supply, ocean freight charges continue to rise, and imported coal prices continue to remain high and set new historical highs," the CEC said.

The NDRC Sept. 13 had asked coal-fired power plants and heating companies to secure all their annual coal consumption volumes through signing medium and long-term coal supply contracts with coal mines. It urged those that haven't covered their demand to sign more medium and long-term contracts with coal mines in a bid to meet 100% of their requirements this year.

In response to the NDRC's call, Northeast China's power generation and heating companies recently signed another batch of medium and long-term contracts with coal mines in Beijing Sept. 25, raising the proportion of their such contracts for coal to 100%.

The National Energy Bureau also carried out investigations into the country's coal and natural gas production over Sept. 23-25. It visited coal production areas and pipeline gas transportation stations, and asked coal and gas suppliers to increase output and make necessary preparations to ensure coal and gas supply in the winter-spring heating season, the Bureau said Sept. 26.

China's heating season normally runs from Nov. 15 to March 15 in the northern regions, with coal, power and natural gas being the main heating fuels.