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China power crunch slams factories as coal lobby warns 'not optimistic' on supply

SHENYANG: Small firms caught in China's prolonged power and coal crunch are turning to diesel generators, or simply shutting shop, as coal officials voiced fears for stocks ahead of winter and manufacturing shrinks in the world's number 2 economy.

Beijing is scrambling to send enough coal to electricity utilities to restore full supply, with the worst power outages in years affecting large swathes of the country, especially three northeastern provinces including Liaoning that are home to nearly 100 million people.

Gao Lai, who runs an industrial laundry service in Shenyang, the capital of Liaoning, said he was losing money after the power crunch forced him to hire a diesel generator.

"We can afford it for just four days, but if it's for longer, then the costs are too much, so we can't survive," he told Reuters.

"We are willing to make it work because the country needs it, but if (power curbs continue) in the long run, we have to think of a way out."

The shortages were triggered by a lengthening surge in the price of coal, which fuels about two-thirds of China's power generation, and is now hovering near record levels amid tight supplies and strong manufacturing demand.

Official data separately showed the measure of manufacturing contracted in September for the first time since February 2020.

Since last week, more than 100 companies in businesses ranging from the manufacture of electronic components to gold mining have notified stock markets of production suspensions over the cuts.

Some have said they resumed production in the last two days, however.

The strain comes as the China Coal Industry Association warned it was "not optimistic" about supplies ahead of winter, the peak season for demand, and added that power plant inventories were now "obviously low".

It urged companies to "spare no effort" to boost supply and focus on sales to smaller, high-energy consumers of coal who have not signed long-term supply contracts.

SWITCH TO DIESEL

In Shenyang, staff at a steel parts factory that has been shut for the last few days said they had not yet rented a generator but might do so if rationing continued.

Zhai Junwang, manager of a company that rents standalone diesel-fired generators, said brisk business in recent days had led to a doubling in rental prices.

"There's very limited stock," he said, while adding that he did not expect the situation to last, as most of the small factories using his generators are now losing money.

Beyond cities and factories, China's farmers are also facing hefty losses, analysts and industry participants said, after the power outages hit the production of key ingredients for animal feedstocks.

The government has said its priority will be to guarantee household power and heating supplies over the winter.

But Citi analysts said in a note they expected power shortages to persist in the winter peak demand season for heating, most of it coal-fired.

The government will allow electricity prices to reflect market fundamentals and changes in costs, the state planner, the National Development and Reform Commission (NDRC), has said.

In August, planners in the key southern industrial hub of Guangdong said they envisaged a hike of 25 PER CENT in power tariffs during the peak load period for non-residential users.

Experts are pressing for fundamental reforms to China's energy system.

The crisis was caused not by supply shortages but an inflexible grid system, Zhang Boting, an official at industry research group the China Society for Hydropower Engineering, said on Thursday.

The solution ... isn't simply relying on increasing power generating capacity, but boosting the ability of the grid to adjust peaks and solve the serious mismatches between energy loads and energy supplies," he said on the group's website.

Source: Reuters/gs

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