China seeks to quell power crunch fears, as coal prices soar, winter nears

[SHENYANG] China on Wednesday demanded railway companies and local authorities raise their game in shipping vital coal supplies to utilities, as regions key to the world's number 2 economy grapple with power cuts that have crippled industrial output.

The order, handed down from China's powerful state planner, comes after a collision of tight coal supplies, tougher emissions standards and strong manufacturing demand has pushed the price of coal, the biggest source of China's electricity to eye-watering records - just as winter approaches.

Thermal coal futures in China hit an all-time high of US$212.92 per tonne earlier on Wednesday - adding more pressure on power utilities unable to recoup added fuel costs. Curbs have been imposed on power use in large swathes of the country, especially three northeastern provinces that are home to nearly 100 million people.

"If there's a power cut in the winter then the heat stops too," said Fang Xuedong, 32, a delivery driver in Shenyang, the capital of Liaoning province, northeast of Beijing.

"I have a kid and an elderly person at home, if there's no heat then that's a problem."

Growing alarm among residents at the power crunch, now in its second week, comes as the state planner - the National Development and Reform Commission (NDRC) - formally urged local economic planners, energy administrations and railway companies to beef up coal transportation to meet winter heating needs.

"Each railway company should strengthen coal transportation to power houses (utilities) with inventory of less than seven days and launch the emergency supply mechanism in a timely manner," said the NDRC.

Officials this week have repeatedly sought to assure residents that there will be power for household use and for heating as winter approaches. China is considering increasing industrial power prices to ease the supply crunch, Bloomberg news reported on Wednesday, citing unidentified sources.

But power rationing has been implemented during peak hours in many parts of northeastern China since last week, with news reports and social media posts signalling outages of traffic lights and 3G communications networks in the region.

On Wednesday, the official People's Daily reported that coal for heating and power in the northeastern provinces of Jilin, Heilongjiang and Liaoning had been ensured as some suppliers and producers signed medium- and long-term coal contracts recently.

China has called for ramping up domestic production of coal and the governor of Jilin province this week proposed an increase in coal imports. Top coal-producing province Shanxi, in the north, has signed medium- and long-term coal supply contracts with 14 provinces, the official news agency Xinhua reported on Wednesday.

China, the world's top coal consumer, imported a total of 197.69 million tonnes in the first eight months of the year, down 10 per cent year-on-year. But August coal imports rose by more than a third on tight domestic supplies.

Li Shuo, a senior policy adviser for Greenpeace East Asia, called on China to reform its power sector to help it absorb price fluctuations and ensure stability.

"This power shortage will carry huge economic and political implications. But let's set the record straight, the root cause is high coal price, NOT climate policies," Mr Li wrote in a Twitter post this week.

"If anything, the power shortage demonstrates the importance of moving away from coal, that a fuel that has been code word for energy security is not secure at all."

REUTERS