SINGAPORE -- A worsening coal shortage means that China faces the prospect this summer of the most extensive power cuts it has seen in four years.
Despite encouragement to keep the current flowing, with new approval to raise electricity prices, power generators are struggling to find enough fuel, in part due to China's clampdown on illegal coal mines. This, coupled with robust demand for electricity, explains why the National Development and Reform Commission recently said the power shortfall this summer could be as high as 10 gigawatts, with 60% of the disparity in Guangdong province, a manufacturing hub.
But analysts say the shortfall may well be larger than the government economic-planning agency's forecast. Cuts are already causing major problems, and the situation may well get worse, not least due to inadequate connections, which hinder regions with surpluses from filling gaps elsewhere. Electricity rationing has been imposed in several provinces, and many power plants are struggling with shrinking coal stocks.
On July 6, inventories at 541 coal-fired power plants connected to the state grid averaged 34.64 million metric tons -- the equivalent of 11 to 12 days of stock, below the normal level of 15 days -- according to domestic media reports. Stocks at 64 plants were below three days' supply, while an additional 181 had stocks of less than seven days.
On Tuesday, shares in Aluminum Corp. of China Ltd., China's largest alumina producer by output, slumped in Hong Kong after the company said two of its smelters in Shanxi province were forced to cut production because of a power shortage.
The Chinese government has been stepping up efforts to close down illegal mines since 2005. Output from small coal mines, which account for nearly one-third of China's total production, is now stagnant at best, and large state-owned mines haven't bridged the gap, said Wang Shuai, an analyst with Shanghai-based Orient Securities. At the same time, demand has been growing robustly in the past year, with a slew of new coal-fired electricity capacity coming online. Yang Tao, an analyst with KGI Securities, estimates that the coal shortage is likely to reach 10 million to 20 million tons this year. Though that volume is a fraction of China's total coal output -- around 2.5 billion tons in 2007 -- it is still significant, because more than 80% of China's electricity is produced by coal-fired power plants.
