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News Analysis: Rising coal prices to worsen China's winter power crunch

(Xinhua)

08:09, October 28, 2011

BEIJING, Oct. 27 (Xinhua) -- The rising price of coal is fueling concerns about a power crunch set to plague China this winter, analysts said.

A 26-million-kilowatt power shortage is expected during peak periods in the coming winter and spring, said Tan Rongyao, chief supervisor of the State Electricity Regulatory Commission.

The power squeeze situation will be grim, especially in Guangxi Zhuang autonomous region and the provinces of Guangdong, Guizhou, Yunnan and Hunan, Tan said.

The country's recent moves to support small and medium-sized enterprises will increase power demands because of resumed production, which will then push up demand for coal, said Xing Lei, a professor at the Institute of China Coal Economy of the Beijing-based Central University of Finance and Economics.

The continuing rises in coal prices and the supply shortage will make the situation even worse as coal is China's cornerstone of power generation, analysts said. About four-fifths of China's electricity comes from thermal power plants.

However, the current coal output is not enough to support the growing appetite for power in the world's second largest economy, and the supply strain may worsen in the future, said Zhang Lizi, principal assistant of North China Electric Power University.

Power shortages have been a persistent headache for China. In 2008, many southern provinces were hit by the worst power crunch in five years, with these regions' power-generating capacity going underutilized due to the coal shortage and soaring prices.

Li Chaolin, an industry analyst, expects the country's coal prices to hit the highest level since 2008 in the coming winter because of the supply shortage.

By Oct. 26, the average price of thermal coal rose 14 percent from a year earlier to a record high of 853 yuan (134.33 U.S. dollars) per tonne following eight consecutive weeks of increases, according to the Bohai Rim Steam Coal Price Index, China's government-run coal price gauge.

The expectation of a coal supply shortage and surging demand will further push up prices, Zhang said.

"The vicious circle, if left unchecked, will hurt the country's economic development," she said.

Meanwhile, higher coal prices increase power generators' financial pressures, making them reluctant to boost production because of the widening gap between the government-set electricity price and the market-oriented coal price, Li said.

Analysts have long called for a reform in the mechanism distortion, which they cite as the major reason for repeated power crunches in the country.

Zhang also advised the government to promote energy-efficiency and industrial structure readjustment to ease power demand growth while boosting supplies by stepping up coal imports.

As the world's largest coal consumer, China consumed 2.28 billion tonnes of coal in the first nine months of this year, up 10.3 percent year-on-year.

It has become a net importer of coal in the first nine months, with a net import of 111 million tonnes. In September alone, the country imported 19.12 million tonnes of coal, up 25.1 percent year-on-year.

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