coal shortage

The impact of the coal shortage is already being felt. There have been record power shortfalls in Shanxi Province, where the government had to ration power supplies, hurting energy-intensive plants such as aluminium smelters. China's top 20 aluminium smelters, including Aluminium Corp of China Ltd (Chalco), will cut production by up to 10% to reduce power consumption. Other industrial provinces, such as Shandong in the north and Guangdong in the south, have forecast deep power deficits. “Beijing froze the price miners are paid for thermal coal until the end of the year as it seeks to cap power prices.” Henan, another big aluminium producing province and one of the nation's most popular, has started to restrict power to industrial users in eight regions and cities, while Shanxi province on Thursday said it had begun to ration power supplies as power plants ran short of coal. Some of the power shortfall can be met by diesel generators, and in fact during the last major power crisis in 2004 China's diesel demand surged by 15%, helping oil prices' first ascent above $50 a barrel. The ultimate solution, though, would be to allow markets to set power tariffs, but Beijing would be reluctant to make such a move when inflation is already near a 12-year high. "If the power tariff is opened up, all problems will be solved but its possible impact on the economy is still in question," said Lin of Xiamen University. ($1=6.860 Yuan).

Expand Image Miners understand if they don't dig out all the coal now, they can sell later for a better price.

Expand Image Chinese producer prices for coal and power since the start of 2007.