China told coal miners in Inner Mongolia, Shanxi to immediately step up production to ease coal shortage, power crunch

China’s two largest coal production hubs has asked coal miners to step up production immediately to ease a power crunch caused by a coal shortage. However, analysts say that coal shortage will remain in the fourth quarter despite recent government measures.

Authorities in North China’s Inner Mongolia Autonomous Region has told 72 mines to step up annual output capacity by nearly 100 million tonnes.

Inner Mongolia’s energy authorities told cities of Wuhai, Ordos and Hulunbuir, as well as Xilingol League, to immediately notify the miners to operate at stipulated higher capacities straightaway, provided they ensure safe production, according to an urgent notice dated Oct 7 that’s been circulating among analysts.

An official with the local energy bureau has confirmed the authenticity of the document.

The document proposed they increase production capacity by 99.25 million tonnes combined. Inner Mongolia produced 491 million tonnes of coal in the first half of the year, according to official data, and the increased output would account for 20 per cent of the region’s first-half coal output.

The notice followed a meeting on Thursday in which regional authorities mapped out measures for winter energy supplies in response to mandates from China’s State Council, or Cabinet, reported the local government-backed Inner Mongolia Daily on Friday.

“The government’s coal task force should urge miners to ramp up output with no compromise, while the power task force should tell power generators to ensure power supply and heating services in the winter season,” it said.

In addition, the country’s top coal producing region of Shanxi province has reportedly told 98 mines to raise coal output capacity by 55.3 million tonnes annually, according to Chinese several Chinese news outlets citing a document issued by Shanxi provincial authorities.

These mines are expected to add 8 million tonnes of coal output between October and December, according to the document.

Shanxi will also allow some 51 coal mines that had hit their maximum annual production levels to keep producing in the fourth quarter and to raise their capacity by 8 million tonnes, which is expected to add 20.65 million tonnes of extra supply.

China’s most-traded thermal coal futures contract on the Zhengzhou Commodity Exchange, for January delivery, tumbled by 5.1 per cent to close at 1,262 yuan per tonne, after opening up nearly 3 per cent. Shares of coal miners and electric power companies slumped on the expectation of rising supplies.

China’s power shortage reached crisis point last month. Electricity rationing has also been imposed in more than half of China’s provinces, as local governments race to meet Beijing’s carbon emissions targets for the year.

Last week China’s state planner, the National Development and Reform Commission (NDRC), called on mining companies and power firms to sign up to new agreements to resolve the problem. Since last month, a series of power cuts has forced factories to cut back production or stop operations completely.

Coal inventories at major Chinese ports were at 52.34 million tonnes in late September before a week-long national holiday that started Oct 1, down 18 per cent from the same period last year, data compiled by China Coal Transportation and Distribution Association showed.

Meanwhile, coal consumption is climbing as northeastern China has kicked off the winter heating season, with major power plants having stockpiles for around 10 days of use, down from more than 20 days last year.

To ensure power and heating supply to residential users, China has reopened dozens of other mines and approved several new ones.The government has also called for “appropriately” raising coal imports to levels on par with last year, analysts said, after imports fell nearly 10 per cent in the first eight months.

Despite the latest government moves to boost production, coal shortage will remain in the fourth quarter, analysts say. According to estimates by Citic Securities, the fourth quarter is expected to see about 20 – 25 million tonnes of newly increased capacity and the shortfall in coal supply is expected to be around 30 – 40 million tonnes even with seasonal expansion of existing coal capacity.

It will take time for the policy introduced in the past couple of month to fully take effect and the tight situation is unlikely to be reversed within this year, it said.

In addition, given the surging energy prices in the international market, coal prices in the domestic market are expected to rise further in the fourth quarter, said Citic.