Tag Archives: Mimboloveblackouts

Swelter skelter

Written by Paul Adkins

All the talk last week, at a Chinese-language conference on Aluminium, was about the upcoming summer, and the likely shortage of electricity.

China’s energy supply-demand balance has been on a knife-edge for several years.   With GDP growth in the 10% range for the last decade, came matching demand for electricity.   Energy supply companies could barely keep up with the growth in demand.   At one stage, it was said that China was adding one new power station per month to the grid.

But electricity generating is not the only challenge.   About 70% of China’s electricity comes from coal.   It is now at the point where China is consuming billions of tonnes of coal per year.   All that coal needs to be produced (and we all know about the horrific safety record at Chinese coal mines), it needs to be transported long distances (coal reserves are mostly in the north and west, but secondary industry is in the east and south, and it needs a working market.   The producers need to make a profit, as do the generators, transmission companies and distribution companies.

This year, all three elements of the energy supply chain are being tested.   Coal mines in some areas are now producing less coal, partly because of the crack-down on small independent producers, and partly because of inherent inefficiency in the mines.   The logistics system is barely able to cope, especially after the Ministry of Railways got distracted by the bullet train program.   (the head of that ministry has been purged, and the cargo transport system has been put back on the top of the agenda.)

But the market is still suffering.   Thermal coal prices have been rising around the world, and this has impacted the China market.   The public market for coal, based at Qinhuangdao, has its price fixed by the Government.    But the direct contract negotiations for coal have been disrupted.   Power companies have complained that they can’t afford the price that producers want, citing the fact that the residential price of electricity is also fixed by the government.

As a result, the on-grid price of electricity was raised recently, by about 0.12 RMB per MWH.   The transmission companies now have to pay extra, but then they are all Government companies, so it is really a form of rebate.   That has freed up the generators to go buy more coal, and pump more electrons down the wires.   But will it be enough?

Already some provinces have reported rationing.   There is talk of rolling outages through the peak summer times, when everyone turns on their air conditioning.   And it has been reported that the domestic price of electricity is set to rise, although that’s only a rumour.

Of course, China is one of the leading countries for investment in alternative energy supply.   Whether it be nuclear, wind, solar or other forms, China is aggressively pursuing a growth strategy.   But none of these will be much use for this summer.

What does all this mean for the aluminium industry?   If there are shortages, or planned outages, will smelters be asked to throttle back?   If smelters are exempted, but secondary industry finds itself restricted, then will the demand for metal go down?   And the price with it?

These are questions which we at AZ China are seeking to answer.   We are putting together a study of the present market conditions, and hope to have it available in the next few weeks.   Watch this space for more information.

Meantime, those at the conference were almost lemming-like in their attitude, according to our people who were there.   Yes, there will be power shortages, was the general feeling amongst those we spoke to.   Will aluminium smelters be affected?   Nobody was prepared to hazard a guess.