Coal prices are skyrocketing as an energy crisis in China rages

© AP Photo/Charlie Riedel A coal-fired power plant. AP Photo/Charlie Riedel

  • Coal prices have nearly tripled in 2021, with analysts pointing to a confluence of factors.
  • It’s fueling an energy crisis in China and threatening the supply chains of companies like Apple and Tesla.
  • The Chinese government has begun to slash power use in certain sectors, including the stainless steel and ceramics industries.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Coal prices have nearly tripled in 2021, fueling an energy crisis in China and threatening the supply chains of companies including Apple and Tesla.

Coal futures contracts have surged 31% in September and over 190% so far this year, driven by voracious demand and restricted supply. That has precipitated an electricity crisis in China, which gets around 70% of its power from coal sources.

Analysts have pointed to a confluence of factors to explain soaring coal prices. Chief among them is that Chinese coal production growth has lagged at just 6% so far this year, compared to a 14% rise in coal-fired power output over the same period, according to Reuters. That’s come as Beijing has targeted steep carbon emission reductions.

In addition, while China could simply tap its 30% of non-coal energy sources, renewables like hydroelectric power have faltered in recent weeks due to one-off weather events.

Meanwhile, municipalities have been hoarding coal ahead of an often-harsh winter season. And importing coal has become political, after Beijing blocked Australian coal imports for demanding an investigation into the origins of COVID-19. Strict border controls in China make the problem worse.

Longer term, expectations that green-energy sources will displace coal have limited investment in new mines, meaning little spare capacity exists to make up for shortfalls in production elsewhere.

“The result has been a severe depletion of coal inventories which has contributed to low stocks at many power plants and upward pressure on coal prices,” wrote Reuters analyst John Kemp on Tuesday.

Amid the soaring coal prices, the Chinese government has begun to slash power use in certain sectors, including the stainless steel and ceramics industries. At least 20 regions have announced some degree of power curb, according to Chinese-language industry publication BJX Power.

The crisis has begun to spill into the operations of US companies that make goods in China, including Apple and Tesla. A key Apple manufacturer said on Monday that its factories were being hit by the mandatory power curbs, according to Bloomberg, while Tesla suppliers were reporting similar impacts.

The state has usually preferred to cut industrial electricity use before it begins barging into consumers’ lives. Fixed prices for electricity leave power plants with little incentive to boost output. But some voices are now advocating raising electricity prices to combat the shortfall.

“It should be clear that electricity is a type of commodity,” Wang Gaofeng, a writer at a Chinese energy magazine, wrote on WeChat in Mandarin. “Having ups and downs is a market law, and a thousand years without movement is not normal!”

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