China's coal output spikes as fuel prices rise

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China's coal output spikes as fuel prices rise

BEIJING, Oct 18 Reuters - China's electric output look set to intensify as coal prices rose on Monday following the data showing fuel supply fell in September adding to concern that domestic output may not be able to meet driving demand for the fuel.

Shortages of industrial coal have driven higher fuel prices for domestic power generators, making Chinese companies to ration power to unprofitable users. It has forced some factories in the world's largest economy to stop production, disrupting global supply chains.

China, also the world's largest energy consumer, has taken steps to increase output of coal, which fuels almost 60% of its power plants, but government data enacted on Monday showed that those steps will take time even as power demand surges to meet post-COVID - 19 industrial needs.

According to Reuters calculations based on the data, September output averaged 11.14 million tonnes a day.

The National Energy Administration NEA last week said that current daily output has climbed to more than 11.2 million tonnes, underscoring the slow pace of making meaningful supplies to market.

The Chinese government is losing the battle to control soaring coal prices, said Wood Mackenzie director of Asia Pacific Power and Renewables Research. Despite efforts to increase coal supply, output dropped in September due to weather, safety and logistics challenges. Both China failed to restrict power demand The NEA also reported September electricity consumption increase 6.8% from one year earlier and is up 12.9% in the first nine months of the year.

Supply and demand mismatch helped push Chinese coal futures to another record on Monday, according to AIM. Coal for January delivery, the most actively traded contract on the Zhengzhou Commodity Exchange, rose on Monday by the upper trading limit of 11% to 1,829 yuan $284.15 a tonne, signalling a belief in a persistent coal supply crunch

The spot price for coal in the province of Shanxi, China's biggest producer, rose to a record 1,630 Yuan per tonne on 15 Oct. 2015, according to prices from SteelHome.

Last week China took a big step in reform by allowing coal-fired power plants to pass higher costs to some customers, with an aim to encourage power plants to generate more energy and ease their profitability pressures.

For coal producers, the recent price liberalization for industrial users is a signal that the government is not confident it can control coal prices in near future, said Whitworth.

He expects higher coal prices to a 25% or more increase in end-user power prices, but it was unclear whether higher power prices would reduce demand growth.

China's massive economy, which cranks out electronics, toys, clothes and equipment for global markets, faces unprecedented factory gate inflation adding to manufacturers, exporters and retailers concerns.

An e-commerce business owner surnamed Chen who sells items such as toothbrushes, plastic tubs and dishcloths from the town of Yiwu in eastern China, an exporting hub in Zhejiang province, said the entire city is carrying out the campaign of energy savings and emission reduction. The industrial park where he is based cuts off electricity once the daily power consumption reaches a certain level and this is adding to delays in orders ahead of major domestic and international shopping festivals at the end of the year.

China has already pledged to crackdown on projects that use large amounts of energy and have high carbon emissions as nearly two-thirds of the country failed to meet their energy-intensity and consumption goals. Energy hogging sectors such as steel and aluminium have been ordered to reduce production.