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China Shuts More Coal Power Plants; Warns on Shortage (Update1)

By Wang Ying

Last Updated: July 8, 2008 04:55 EDT

http://www.bloomberg.com/apps/news?pid=20601080&sid=aiyKnEEj9qZ0&refer=asia

July 8 (Bloomberg) -- China, the world's second-biggest energy consumer, shut 2.5 percent of its coal-fired power plants, prompting local governments to limit electricity consumption and issue warnings on possible blackouts.

Insufficient coal supplies forced the closure of 58 power- generating units in central and northern China as of July 6, or 14,020 megawatts of capacity, data from the State Grid Corp. of China showed yesterday. The nation's total coal-fired capacity stood at 554,420 megawatts last year, according to the State Electricity Regulatory Commission.

Coal inventories at State Grid, the country's biggest power distributor, were enough for about 11 days of consumption as of July 6, compared with 12 days in April and 15 days in March. China shut 7 percent of its coal-fired plants in January after the worst snowstorms in 50 years hampered fuel transportation, leading to electricity shortages affecting half of the nation's 31 provinces.

``The power problem is beginning to look deep-seated and structural and unlikely to be resolved rapidly,'' said John Kemp, a London-based analyst with Sempra Metals Ltd.

The latest power-plant closures come even as the government last month imposed ``caps'' on thermal-coal prices through the end of the year to control raw-material costs and ensure electricity production.

``Coal suppliers may sell the fuel to consumers willing to buy at much higher prices,'' David Fang, a director of the China Coal Transport and Distribution Association, said by telephone in Beijing on July 4. ``This would worsen the coal shortage.''

Small Mines Shut

Aggravating the shortfall, China has been shutting thousands of small and unsafe mines in Shanxi and other areas. China generates almost 80 percent of its power from coal, with the northern province its biggest producing region.

Shanxi, which has issued a ``red'' alert, will ``resolutely'' limit power supplies to energy-intensive and polluting factories, the State Electricity Regulatory Commission said in its in-house newsletter yesterday.

Aluminum Corp. of China Ltd., the nation's biggest producer of the metal, halted output at a venture in the province because of power shortages. That pushed the price of aluminum to a record yesterday.

Shanxi ordered smelters to cut output to ensure power supply for farming, Wang Suomin, a manager at the Shanxi Huaze Aluminum & Power Co. venture, said by phone yesterday.

Henan Province

The central province of Henan restricted electricity use in eight cities as power plants shut because of fuel shortages, Xinhua News Agency reported on June 27. Henan will face a power deficit when consumption peaks in summer, it said.

State Grid Corp., which buys electricity from 541 coal- fired power plants and distributes it to more than 1 billion people across the country, said yesterday the coal stockpiles of 64 power plants have fallen below the ``caution line.'' That means that the inventories of those generators can't meet more than three days of consumption.

``The government may introduce more steps in the coal industry because the price caps may prove ineffective in easing thermal-coal shortages,'' Fang said last week.

Overseas suppliers may be unwilling to sell the fuel to China because of the government caps on domestic prices announced on June 19, Fang said on July 1. That would aggravate the country's coal shortages.

Coal Prices

Domestic thermal-coal prices range between 800 yuan ($117) and 900 yuan a ton, Fang said at the time. That's lower than prices at Australia's Newcastle port, a benchmark for Asia, where the fuel jumped to a record $194.79 a ton in the period ended July 4, according to the globalCOAL NEWC Index.

Global coal prices will ``move modestly higher over the next six to 12 months,'' Daniel Brebner, UBS AG's executive director of commodity research in London, spoke in a phone interview on July 3. ``You have infrastructure issues building in both the U.S. and Russia, and a potential power crisis in China over the summer.''

To contact the reporter on this story: Wang Ying in Beijing at [e-mail]

Last Updated: July 8, 2008 04:55 EDT