Energy crisis in China hits more than just metals output

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Much is being made of Beijing’s efforts to meet its environmental emissions targets — the country states it will hit peak emissions before 2030 and carbon neutrality by 2060 — and its restricted steel and aluminium production.

But a recent Reuters post by John Kemp suggests output is being impacted more by a widening electricity crisis than by enforced shutdowns to meet environmental goals.

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China’s energy crisis

coal barge in China

ymgerman/Adobe Stock

Kemp explains that China is in the grip of a severe shortage of both coal and electricity. Coal output has not kept up with rising electricity demands from a rapidly recovering economy.

China’s electricity generation increased by 616 Terawatt-hours (13%) in the first eight months of 2021 compared with the same period last year. The largest rises came from the service sector and primary industries.

However, most of the increase has been supplied by thermal generators, principally coal-fired power stations, Kemp explains. Those generators increased output by 465 TWh (14%) in the first eight months.

Other power sources, such as hydro-electric output, have actually fallen slightly this year due to water shortages. Unfortunately, nuclear in China is a tiny fraction of power generation, dwarfed even by renewables like wind and solar.

Surging demand

While authorities’ desire to meet provincial targets for reductions in energy consumption are a contributing factor in crimping power generation, demand outstripping the electricity industry’s ability to supply is causing rationing and enforced blackouts.

The main culprit is a lack of coal supply. Domestic mines have failed to increase output sufficiently to meet rising demand. Domestic coal supply is up 6%, figures supported Reuters say by rail freight data. Meanwhile, power production is up 14% so far this year, which has drained coal inventories, pushing up prices to potentially loss-making levels and sucking in imports. Imports, though, are struggling.

Following a spat with Australia late last year, Beijing banned coal imports from there. As a result, China is left with far from ideal alternatives.

Russia must first meet contractual demand from Europe, Japan and South Korea. Indonesia’s export shipments have been curbed by rainy weather the last couple of months. Mongolia’s exports, mostly by trucks, are small.

The Sydney Morning Herald speculates a U-turn on the ban is imminent as the only way to resolve the crisis.

Such pragmatism may cut across national pride. Following this month’s announcement that Australia is joining the U.S. and U.K. in developing a fleet of nuclear-powered submarines, ostensibly to counter China, the climate is not conducive for an early detente.

Beijing may choose to reduce power output, with all the consequences for reduced GDP growth and output, rather than be seen to climb down.

As such China’s, reduced aluminum output looks like it will be an ongoing feature for this winter, at least, sustaining primary imports and crimping semi-finished product exports.

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