A heat wave across some of China’s biggest industrial provinces has pushed local electricity consumption to unprecedented levels, sending thermal coal futures toward record highs.
The power load in the eastern province of Zhejiang near Shanghai surpassed 100 million kilowatts per hour for the first time, the State Grid said in its newspaper. Usage has also hit records in nearby Jiangsu and the southern region of Guangdong, where temperatures have reached as high as 37 degrees Celsius (99 degrees Fahrenheit).
The excessive demand boosted Chinese thermal coal futures to the highest in two months, briefly topping 900 yuan a ton in early trading. Futures have rallied more than 30% this year, reaching a record in May, amid a supply shortage.
Coal, China’s principal energy source, has been in short supply as a trade spat with producer Australia has crimped imports, while a spate of fatal accidents has led to safety inspections.
At the same time, China’s efforts to limit the use of the dirtiest fossil fuel have been thwarted as hot weather raises air conditioning needs.
“Southern China has been very hot, and the daily power load is consistently breaking new highs,” said Huatai Futures Co analyst Wang Haitao. “Although the supply of coal has increased, that’s hard to sustain given the intense draw-down. Some regions are again rationing electricity and issuing warnings about using coal.”
Pressure on the nation’s electricity sources is resurfacing with the onset of summer, which meteorologists have said may be hotter than usual this year. Compounding the problem is China’s strong economic growth as factories return to full strength after the pandemic. Power consumption surged 10% in June.
Authorities have tried several measures to ease the situation. Among the biggest was the plan to supply 10 million tons of the fossil fuel from reserves, the fifth release of stockpiles this year, according to the Xinhua News Agency. China’s top economic planner vowed a massive buildup of capacity to meet demand and cool prices. China has also considered price caps. But any efforts to boost production at local mines will take time, and the spot market remains tight.
Zhejiang’s peak load is equivalent to almost five times the energy produced by China’s largest hydropower station, the Three Gorges. The province is still highly reliant on coal, with only 30% of its power supplied from renewable sources. Jiangsu’s energy needs are even higher, with the province expected to have a peak load of 125 million kilowatt per hour this summer.
Extreme weather is upsetting the coal market in more ways than just hot temperatures. A rainstorm temporarily halted the road links between major coal sourcing province Shanxi to some neighbouring regions.