Coal Supply Crisis in China Broadens with Mines Closure Amid Flooding

Coal production halted in China’s biggest coal production region Shanxi province amid heavy and flooding. Shanxi accounts for 30% of China’s coal production this year. The province constitutes of 682 coal mines of which 60 mines has shut down production.

The latest development has sent prices of coal skyrocket further containing Beijing’s effort to ensure sufficient supply of coal. Coal futures in the Zhengzhou exchange up by over 8 % as of Monday.

Authorities has announced to hike electricity price in an effort to incentivize the rising costs in production. Latest move by the authorities also includes gradually allowing coal-based power to be traded in the market rather than depending on the government regulated prices which is also to promote qualified miners.

Beijing in a move to aid the energy crisis allowed miners to run at full capacity even after hitting annual production quota.

Chinese broker Citic Securities stated it would take long time before sufficient supply is restored. They included even after all these efforts supply gap would still be from 30-40 million in the fourth quarter. Power usage in such case in the industrial sectors would lead 10-15% reduction in November and December.

The supply crisis is expected to intensify as winter closes in putting higher pressure on other energy related commodities which further adds risk to the economic recovery.

Global commodity market tumbles for the past few weeks which erupted from storage of natural gas and coal spilling over to pressure in the oil market. Unless OPEC+ jumps in and boost supply there is no immediate resolution to the soaring oil prices. Although it is widely expected market interventions would follow to keep oil prices under control, however earlier comment of U.S. Energy Department of immediate plans to tap the nation’s oil reserve puts an uncertainty on the consensus.

The WTI crossed the threshold level of 6 years breaking $80 level.