China's coal prices rise as supply of fuel rises

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China's coal prices rise as supply of fuel rises

BEIJING Reuters - China's power woes look set to intensify as coal prices rose on Monday following the data showing supply of the fuel fell in September adding to concerns that domestic output may not be able to cope with rising electric generation demand.

A shortage of domestic coal has driven fuel prices for industrial generators higher, causing the unprofitable companies to ration power to domestic users. It forces some factories in the world's largest economy to stop production, disrupting global supply chains.

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

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

Last week, the National Energy Administration NEA said current daily output has risen to more than 11.2 million tonnes, underscoring the slow pace of bringing meaningful supplies on market.

The Chinese government is losing the battle to control soaring coal prices, said Wood Mackenzie's Alex Whitworth, head of Asia Pacific Power and Renewables Research. Despite efforts to increase coal supply, output fell in September due to weather, safety and logistics challenges. Nor has China successfully contained the solar demand The NEA also reported that September electricity consumption rose 6.8% from a year earlier and is up 12.9% for the first nine months of the year.

The supply and demand mismatch helped push Chinese coal futures to another record on Monday. Coal for January deliveries, the most actively traded contract, 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.

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

Recent price liberalization for coal power utilities and industrial end-users is a signal that the government is not confident it can control coal prices in the near future, said Whitworth.