China eyes coal output boost, higher power prices to ease shortages

BEIJING/SINGAPORE: China has ordered its two top coal regions to boost output and will allow coal-fired power utilities to charge customers higher prices as the country battles its worst power crunch in years.

Inner Mongolia and Shanxi told coal miners to lift combined annual production capacity by more than 160 million tonnes, while China's cabinet said market coal-fired power prices may now fluctuate up to 20% from base rates, an increase on previous limits, or more for high energy consuming sectors.

The pricing adjustment is designed to prevent high energy consumption, state media reported, adding that prices for residential and agricultural users, as well as public welfare initiatives, would be kept stable.

Near-record high thermal coal prices and electricity shortages that have prompted power rationing across China have dented the country's industrial output and threaten its economic growth.

Shanxi, China's biggest coal-producing region, ordered its 98 coal mines to raise annual output capacity by 55.3 million tonnes over the remainder of the year, an official from the provincial government confirmed on Friday in a document reviewed by Reuters.

Shanxi will also allow some 51 coal mines that had hit their maximum annual production levels to keep producing in the fourth quarter and to raise capacity by 8 million tonnes, which is expected to add 20.65 million tonnes of extra supply.

In China's No. 2 coal region, Inner Mongolia, an urgent notice dated Oct. 7 from the region's energy department asked local authorities to notify 72 mines that they may operate at stipulated higher capacities immediately, provided they ensure safe production.

A department official declined to say how long the production boost would last. The notice followed a meeting where regional authorities mapped out measures for winter energy supply in response to mandates from China's cabinet, known as the State Council, the Inner Mongolia Daily reported on Friday.

"The (government's) coal task force shall urge miners to raise output with no compromise, while the power task team shall have the generating firms guarantee meeting the winter electricity and heating demand," the newspaper said.

"This demonstrates the government is serious about raising local coal production to ease the shortage," said a Beijing-based trader, who estimated the production boost may take two to three months to materialise.

The 72 mines in Inner Mongolia, most of which are open pits, previously had authorised annual capacity of 178.45 million tonnes. The notice proposed they increase that by 98.35 million tonnes, Reuters calculations showed. "It will help alleviate the coal shortage but cannot eliminate the issue," said Lara Dong, senior director with IHS Markit.