Powering Down Coal-Fired Economic Expansion

Powering Down Coal-Fired Economic Expansion

Slowing nationwide power demand and coal consumption, twin barometers for economic growth, suggest the Chinese economy may be sailing into the doldrums while at the same time changing its course.

Electricity use in May rose a relatively mild 5.2 percent compared to the same month last year and just 1.5 percent over April’s level to 406 billion kilowatt hours, the National Energy Administration (NEA) said.

The January-May power consumption rate grew at a similarly gradual 5.8 percent pace in sharp contrast with a 12 percent growth rate posted not only for the same period 2011, the energy administration said, but for every calendar year over the past decade.

The decline partially explains why demand for Chinese coal, half of which is burned in domestic power plants, has weakened, pushing stockpiles higher and prices lower.

Coal inventories this year have risen to new heights month on month, particularly at storage-shipping facilities such as Hebei province’s Qinhuangdao, the nation’s leading coal port.

Qinhuangdao’s stockpile of 9.5 million tons of coal on hand during the week of June 18 exceeded an all-time peak reported during the 2008 financial crisis and approached the port’s maximum storage capacity, official data shows.

Power plants around the country have been building their own stockpiles, too, sometimes storing enough for twenty-eight days worth of production.

Meanwhile, coal prices have been falling—recently at an accelerating rate. Power plant-ready coal was selling in late June at northern ports for 702 yuan per ton, down from nearly 800 yuan per ton just two months earlier.

Some analysts have linked these trends to the nation’s slowing economy and more energy-efficient manufacturing. Wu Zhonghu, executive manager at the National Energy Research Association, said energy efficiency and “inevitable ... structural adjustment” for the nation’s economy are putting the brakes on electricity consumption growth.

Others analysts say domestic coal prices have fallen in response to significantly higher imports. Liu Huibao, a coal analyst at Haitong Securities, said China imported more than 20 million tons of coal every month so far this year, significantly affecting the market landscape.

China imported 107 million tons of coal between January and May, up nearly 82 percent from the same period 2011, said Wang Xianzheng, president of the China Coal Industry Association. That compared to domestic coal production of 1.6 billion tons for the five-month period, up 6 percent from last year.

“Imported coal is having a more prominent impact on the domestic coal market,” Liu said.

CITIC Securities coal analyst Li Junsong said since imports have risen at a time of slowing demand for coal, low prices on the international market “have in fact dragged down domestic coal prices.”

Structural Shift

On a broader scale, analysts generally agree that the economy’s slowing growth rate has contributed to declining power and coal consumption growth.

Han Xiaoping, chief information officer for the power industry data portal, told Caixin that electricity consumption trends historically reflect short-term changes in the Chinese economy. And those trends are pointing to several structural adjustments.

For years, China’s industrial structure has been heavily reliant on power-hungry businesses including steelmaking, non-ferrous metal and chemicals production, and construction materials manufacturing. Strong growth in each of these sectors factored into soaring power consumption over the past decade, said Zhang Long, chief electricity analyst at Essence Securities.

But now, China’s economy is shifting toward service-sector growth and away from heavy industry expansion. For that reason, non-residential demand for electricity has grown much faster in the service sector than in manufacturing, steelmaking, cement production, and the like.

Power consumption in the service sector grew 12.4 percent in the January-May period, said NEA, compared to 3.8 percent in the industrial sector overall and around 1.4 percent among major power-consuming industries. And while the industrial sector accounts for 73 percent of all non-residential power demand, NEA said, it now accounts for only 47 percent of gross domestic product.

Moreover, light manufacturing growth has been outpacing heavy industry expansion during the first five months this year for the first time since 1999, said Li Xunwei, chief economist at Haitong Securities.

Change is also affecting the power industry’s supply structure thanks to, for example, heavier use of hydroelectric plants. NEA expects an increased emphasis on hydropower and other non-coal sources of electricity to reduce power plant demand for coal by about 8 million tons this year.

Indeed, coal-fired power plant generating capacity fell 1.5 percent in May from the same month 2011. Meanwhile, nationwide hydropower generating capacity grew 31 percent in May over the same period 2011 and 52 percent over April’s level.

Yu Hairong is a Caixin staff reporter.

From the Caixin Editors

It was often reported a few years ago that China was building coal-fired power plants at a blizzard’s pace—some said launching two plants every week—to meet soaring electricity demand in an economy growing at double-digit rates. A mere glance at any downtown Chinese cityscape at night still confirms a tremendous thirst for electricity: Floodlights bathe skyscrapers and colorful neon accents highway viaduct railings. But the heady days of power plant super-expansion may be over now that the economy’s growth rate is slowing in the 7 percent range. Government economic planners now say they want more growth in service-related businesses than power-consuming steel mills. Their decisions, though, cannot be separated from serious power-industry challenges tied to the impact of the Fukushima disaster on the nuclear sector, global coal prices, and the nation’s struggling wind energy industry. Building a coal plant may have been a lot less challenging.

By Yu Hairong



Caixin Media


Xi and Obama Should Make a BIT Breakthrough

President Xi Jinping has begun his first state visit to the United States to meet U.S. President Barack Obama in what state councilor and former foreign minister Yang Jiechi has called “a pivotal meeting at a critical time.”Xi arrived in the United...

Caixin Media


Chinese Contractor Finds Project in Bahamas Is No Day at Beach

A giant luxury resort planned on a beach outside the Bahamas’ capital, Nassau, that is supposed to be a showpiece to help China’s largest construction company tap the U.S. market has become a headache for both its builder and a lender.The resort was...

Caixin Media


Stock Market Volatility Is Not a Harbinger of Collapsing Growth

It would be a sad end to an amazing story. An economic miracle—one that lifted 300 million people from poverty and shifted the world's economic center of gravity—collapsing under the weight of risky investments and a financial crisis.This seems...

Caixin Media


Amnesty As a Stepping Stone to Rule of Law

A recent amnesty declaration affecting convicted criminals deemed no threat to society was a poignant reminder of China’s tradition of prudent punishment, support for human rights, and progress toward of rule of law.The recent decision by the...

Caixin Media


Quantum Computing and Alibaba’s Leap of Faith

Building a quantum computer that processes data at speeds trillions of times faster than the world’s fastest computer, China’s supercomputer Tianhe-2, is the goal of a potentially game-changing venture launched by Alibaba Group Holding Ltd. and the...

Caixin Media


How to Solve China’s Currency Parity Puzzle?

Boosting exports, controlling outbound capital flow and supporting the Chinese currency’s bid for Special Drawing Rights (SDR) status are just some of the reasons cited by analysts for the yuan's unexpected devaluation in mid-August.The yuan...

Caixin Media


Official Stonewalling on Tianjin Explosions Sparks Outcry

While victims of the Tianjin explosions are still waiting to be told why their loved ones died or, how safe it is to go outside, officials remained evasive in the sixth press conference regarding the disaster.In response to a question from a Caixin...

Caixin Media


Auditors Probe Sinopec, Savvy Broker in Angola

Government auditors are taking a closer look at U.S.$10 billion worth of offshore oil investments by state-run China Petroleum & Chemical Corp. (Sinopec) that owe their existence to a Hong Kong businessman with a flair for networking in the...

Caixin Media


Villain or Hero for Stock Market Saga?

An obscure equities-trading finance agency that brokers often slighted in favor of bank loans has suddenly taken center stage in the drama playing out in the stock market.But reviews are mixed over whether the four-year-old, quasi-governmental China...

Caixin Media


Tech Takeoff Lifts Drone Industry to New Heights

A tech evolution and falling production costs have allowed drones to make the flight off military bases and Hollywood production lots to the hands of ordinary people and government agencies.It has become routine to see these small unmanned aerial...