A coal-fired power station. AP Photo/Charlie Riedel
Analysts point to a convergence of factors that has led to coal prices nearly tripling in 2021.
It is causing an energy crisis in China, and it is threatening supply chains for companies like Apple and Tesla.
The Chinese government is reducing power usage in certain sectors, such as the ceramics and stainless steel industries.
Subscribe to our daily newsletter 10 Things Before The Opening Bell.
The coal prices have almost tripled by 2021, causing an energy crisis in China. This is threatening the supply chain of companies like Apple and Tesla.
Due to a combination of high demand and limited supply, coal futures contracts rose 31% in September and 190% so far this season. This has led to an electricity crisis for China, which receives around 70% of its power from coal sources.
Analysts believe that a combination of factors is responsible for the soaring prices of coal. According to Reuters, the main reason is that Chinese coal production has slowed to 6% this year, compared with a 14% increase in coal-fired electricity output during the same time period. Beijing has set high carbon emission reductions as its goal.
Additionally, China could tap its 30% non-coal energy resources, but renewables such as hydroelectric power have been hit hard by weather events in recent weeks.
Municipalities have been stockpiling coal in anticipation of a harsh winter season. Importing coal has also become politically fraught after Beijing stopped Australian coal imports, demanding an investigation into COVID-19's origins. The problem is made worse by China's strict border controls.
In the long-term, green-energy sources are expected to replace coal. However, there is limited investment in new mines. This means that there is little capacity left to compensate for production losses elsewhere.
John Kemp, a Reuters analyst, wrote Tuesday that the result was a drastic depletion in coal inventories. This has led to low stock levels at many power plants and increased pressure on coal prices.
The Chinese government is reducing power consumption in certain industries, such as the ceramics and stainless steel industries, amid rising coal prices. According to BJX Power, at least 20 regions have announced some form of power curtailment. This is according to the Chinese-language industry publication.
The crisis is already affecting US companies making goods in China such as Apple and Tesla. Bloomberg reported Monday that a key Apple manufacturer stated that its factories were being affected by the mandatory power cuts. Tesla suppliers, however, were reporting similar effects.
The state prefers to reduce industrial electricity consumption before it starts affecting consumers' lives. Fixed electricity prices leave power plants without incentive to increase output. Some voices advocate raising electricity prices in order to address the shortage.
Wang Gaofeng, a Chinese writer, posted the following message on WeChat in Mandarin: "It should become clear that electricity is an type of commodity." "Having ups or downs is market law. A thousand years without movement, however, is not normal!"
