Home Financial Record China digs deep to boost coal production to record high (Kemp)

China digs deep to boost coal production to record high (Kemp)

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LONDON — China’s coal output has surged this year as the government seeks to improve energy security by reducing import dependence and hoarding stocks at power plants.

The increase in domestic coal production is in line with Beijing’s broader efforts to indigenize supplies of essential energy sources, raw materials and technologies.

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Production hit a record 2,929 million tonnes in the first eight months of 2022, according to China’s National Bureau of Statistics (“Monthly Output of Energy Products”, NBS, September 16).

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Mining production increased by 332 million tonnes (13%) compared to the same period in 2021 and by 520 million tonnes (22%) compared to the last pre-pandemic year in 2019.

Generation has increased faster than coal-fired power generation as the government attempts to increase fuel stocks and reduce import dependency (https://tmsnrt.rs/3qQFZPd).

Thermal power generation, almost entirely from coal, set a new record of 3.883 billion kilowatt hours (kWh) in the first eight months of the year.

But thermal production only increased by 10 billion kWh (0.3%) compared to 2021 and by 497 billion kWh (15%) compared to 2019.

Large increases in wind farms, solar farms and, until this summer’s drought, hydroelectric plants have also reduced the need to burn more coal.

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As a result, the share of coal-fired generators in total electricity generation fell to 69% in the first eight months of 2022, from 72% in 2021 and 2019.

This has translated into improved coal stocks held by power generators after they became dangerously depleted last year.

Coal and lignite imports also fell to 168 million tonnes in the first eight months of 2022, from 198 million tonnes in 2022 and 220 million tonnes in 2019.

Part of the reduction is due to disruption caused by repeated shutdowns to control the coronavirus outbreak that has hit iron and steel production.

Coal imports include both high quality coking coal for blast furnaces and low quality coal for power stations.

But the massive expansion of domestic production has allowed China to increase production and replenish stocks without having to source more fuel from exporters.

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DROUGHT THREAT

Since late June, however, the severe drought that has hit the Yangtze basin has reversed some of these favorable trends and rekindled energy security concerns.

Low levels of hydropower generation have forced China to rely more on coal-fired power plants and draw more on coal supplies since the start of July.

If the drought persists, the electricity supply is likely to be particularly tight during the winter peak, when hydro and solar generation will be lower while heating and lighting loads will increase significantly.

The country is still plagued by transmission constraints, despite massive construction of very high voltage transmission corridors from west to east and north to south, causing power shortages at the provincial level.

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But without the sharp increase in mining production at the start of this year and the build-up of stocks in the spring and summer, energy supplies would be even more strained.

As a result, the overall coal and power supply situation looks more comfortable than at the same time last year, when coal inventories fell to critical levels.

In recent days, more normal seasonal rainfall in the Yangtze basin has eased some pressure on water levels, which should also relieve some of the pressure on coal stocks.

Futures prices for coal delivered in December 2022 fell to $131 a ton from $148 at the start of the month, although they are still up from $116 at the start of this year.

Associated columns:

– Drought in China heightens fears of global coal shortage (Reuters, September 6)

– Global coal-fired power generation in 2021 hits record high (Reuters, July 21)

– Closures and heavy rains in China ease coal shortage (Reuters, June 21)

John Kemp is a market analyst at Reuters. The opinions expressed are his own (Editing by Alexander Smith)

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