A coal shortage is threatening the global economic recovery. Blackouts could spread from China and India to all the emerging economies still mostly reliant on coal. As supply can’t be ramped up in the near term, the shortages could worsen as energy demand rises with winter’s arrival. That may trigger another emerging-market crisis.
The coal price has more than tripled in a year to near historical highs, while oil prices are halfway to their peak. The near-term trend is still up. As blackouts trigger a political backlash at home and domestic supply remains difficult to ramp up quickly, China is likely to bid for more coal in the international market, possibly increasing imports by 15 million tonnes per month, or over 50 per cent more than last year.
As the global supply can’t respond so quickly, the price has the potential to skyrocket again. How high it goes depends on how much China is willing to pay. During the previous coal shortage in 2008, China was paying close to US$200 per tonne. As China is much richer now, the price could go much higher.
China’s coal-fired electricity production rose by 12.6 per cent in the first eight months, while coal production was up only 4.4 per cent. The big gap needs to be met by either running down inventory or increasing imports. China consumed 3.8 billion tonnes of coal or 52 per cent of the global total in 2020, according to the International Energy Agency, of which 2.3 billion tonnes was for electricity production.
The gap between electricity demand and coal production works out to a shortfall of 189 million tonnes. China imported about 300 million tonnes of coal last year. An additional demand of such magnitude in a global trade of just 1.4 billion tonnes would trigger an enormous price response.
The surging price so far has deterred China from fully filling the gap with imports. Running down inventory has played a substantial part. As inventory dwindles, rolling blackouts have become an option.
