SHANGHAI (Interfax-China) -- Coal stockpiles in power plants have plummeted from March's level, and some power plants are facing limited fuel supplies, a top official with China's electricity market watchdog said yesterday at a press conference.
Coal industry analysts told Interfax that the low coal stockpiles are mainly due to the lack of effective coal production capacity.
Wang Yeping, vice director of the State Electricity Regulatory Commission (SERC), said at a press conference held by the State Council Information Office that the total coal stockpile in key power plants dropped to 46.69 million tonnes on April 20, from 53 million tonnes at the beginning of this March. Wang said current coal stockpiles at some key power plants in Hebei, Anhui and Chongqing are sufficient for no more than seven days of power generation.
Li Chaolin, a coal industry analyst with the China Coal Transportation and Development Association (CCTD), told Interfax that the rapid drop in coal stockpiles in power plants is attributable to the lack of effective coal production capacity.
Li said that the main reason effective production capacity has been reduced is to eliminate small-scale coalmines, a policy the Chinese government has adopted to improve power production efficiency and safety standards.
According to Li, Datong City, a critical coal production city in Shanxi Province, saw only 18 million tonnes of coal output from its small-scale coalmines last year, while those coalmines have a total annual production capacity of 48 million tonnes.
"Although coal production resumed after the Chinese New Year holiday, which ended in the middle of February, industrial electricity consumption also surged quickly," Li Jianwei, the head of the Shanxi Electric Power Association (SEPA), told Interfax. "That in turn drove up coal consumption."
Li Jianwei said that 70% of thermal power plants across the country suffered operational losses in the first quarter of the year, while operational losses occurred in 85% of thermal power plants across Shanxi Province over the same period.
According to Li Jianwei, Shanxi's coal prices have gone up over 160% since January 2006.
He said that some power plants in the province have not secured enough cash flow to source sufficient coal for power generation.
Li Jianwei said thermal plants are appealing to various government sectors for help, but have not yet received a response.
Li Jianwei said the current poor operational situation of thermal power plants may cause severe power shortages in the summer, when the country will see its peak power demand of the year.
The possibility that China, which has an annual coal output of 2.73 billion tonnes, could be facing a thermal coal shortage seems absurd.
However, as China's coal production capacity is lagging behind rapid demand growth, China could see a net increase in coal imports, therefore putting upward pressure on international coal prices this year.
Last month, due to growing concerns over the possibility of domestic shortages, the government slashed coal export quotas by 24% to safeguard domestic supplies. Not only will this tighten spot markets in Asia and support international price growth, it leaves open the possibility that China will become a net coal importer before the end of the year. This would not be difficult, as the country reported net coal exports of only 2.15 million tonnes on total exports of 53.17 million tonnes last year.
High international coal prices caused imports to tumble 18.2% year-on-year in the first two months of 2008 to only 7 million tonnes. If the decline is projected out over the rest of the year, it would still make China a small net coal importer this year.
With the upcoming Olympic Games, and increased attention from international media, the crack down on deadly small-scale and illegal coalmines will continue, lest a coalmine disaster mar the Olympic festivities, and put further pressure on domestic production capacity.
Although efforts to increase efficiency at thermal power plants and the impact of slowing economic growth around the world could affect demand growth, world coal markets should expect price support as the world's largest coal producer becomes a net thermal coal importer.
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