China's electricity woes are likely to intensify as coal prices soared to a record high on Monday, after data showing that fuel supply fell in September raised concerns that domestic production won't be able to meet rising electricity generation demand.
Domestic coal shortages have pushed fuel prices up for Chinese power producers, causing unprofitable companies to distribute electricity to industrial users. This has disrupted global supply chains, forcing some factories in the world's largest economy to suspend production.
China, which is also the world's largest energy consumer, has taken measures to increase coal production, which feeds about 60% of its power plants, but government data on Monday showed that these steps will take time even as electricity demand rises. COVID-19 industrial needs.
Coal production in China fell to 334.1 million tons last month, down from 335.24 million tons in August and 0.9% lower than the previous year, according to National Bureau of Statistics (NBS) data.
According to Reuters' data-based calculations, September production averaged 11.14 million tons per day.
The National Energy Administration (NEA) said last week that current daily production has risen to over 11.2 million tons, underscoring the slow pace of providing meaningful supply to the market.
"The Chinese government is losing its battle to control rising coal prices," said Alex Whitworth, head of the Asia Pacific Energy and Renewable Energy Research at Wood Mackenzie. "Despite efforts to increase coal supply, production fell in September due to weather, safety and logistical difficulties. China also failed to rein in rising energy demand."
The NEA also reported that September electricity consumption increased by 6.8% year-on-year and increased by 12.9% in the first nine months of the year.
The supply and demand mismatch helped Chinese coal futures hit another record on Monday. Coal for January delivery, the most actively traded contract, climbed to 1,829 yuan ($284.15) a tonne on Monday with an 11% upper trade limit, signaling a belief in a persistent coal supply shortage.
Last week, China took a big step in energy reform by allowing coal-fired power plants to impose higher costs on some customers to encourage power plants to produce more electricity and ease profitability pressures.
“The recent price liberalization for coal plants and industrial end users is a sign that the government is not confident that it can control coal prices in the near future,” Whitworth said.
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