Coal Shortages Caused Power Outages in India, China And Tajiskistan
By Ramsha Zubairi
November 4, 2021—Coal prices surged this Fall, producing electric outages in multiple countries. As the global economy continues to get back on track after the pandemic, coal industries struggle to meet the rising demand for the commodity.
In recent weeks and months, many communities in India, China and Tajiskistan faced some of the worst power outages that they have in years.
In China, the population got by with streetlights and elevators turned off and limited heating of offices. Some factories and schools were also forced shut to manage the electricity crisis. Overall, China underwent what has been its worst power shortage in decades, reported China Macro Economy.
In India, some states faced extreme power cuts, with residents of urban cities complaining of power outages lasting for up to seven to eight hours a day while a few villages faced 12 to 14 hours of power cuts. In Maharashtra, 13 thermal power plants have been shut down, whereas in Punjab three power plants halted production.
Coal Shortage, High Energy Prices
As the international community deals with coal shortages, commodity prices surged this Fall. The effects of the rising prices are felt most in the coal importing economies.
Apart from China, India heavily depends on coal for electricity generation with more than 70 percent of its power supply generated with coal; and with a coal shortage, the two countries continue to face power cuts.
The electricity crisis has extensively impacted industrial productions with some factory outlets, especially in India and China, forced to temporarily shut down. China’s dual policy on energy intensity and consumption has added to the challenging crisis. The electricity crisis and increasing costs of transportation have led to the continuous rise in the prices of most base metals while some, like iron ore, observed a decline in their costs.
Additionally, other commodities that are indirectly dependent on coal, too, have observed a sharp rise in their costs. Agricultural costs, with an increase in input costs (coal, natural gas and fertilizers) recorded a 25 percent rise.
A surge in energy prices could add to higher inflation in countries around the world, specifically in coal importing economies with rising prices of electricity, transport and heating costs, reported the World Bank.
Causes of Coal Shortage
In 2020, the production of coal fell by 5 percent and has since been unable to meet the demands. While production of coal remains slow, there has been an increase in demand for coal for electricity generation and for industrial purposes as well. With extreme weather due to climate change, major economies like China and the United States have experienced a sharp rise in the demand for electricity. Heavy rains and storms have also affected production and exports from Australia and Indonesia.
China’s import ban on coal from Australia has negatively impacted the prices of domestic supply and non-Australian imports of coal.
China-Australia Trade Woes
China is the biggest producer, consumer and importer of coal, and as the country’s economy continues to grow post-pandemic, its demand for the commodity moves in the upward direction. (For more on China’s coal use, see Coal, China and Climate Change.)
Australia is the largest exporter of metallurgic coal used in the production of steel and the second largest for thermal coal used for electricity generation. The ban on Australian coal resulted in international trade disruption as China partnered with other coal exporting countries and Australia moved on to sign deals with other coal importing countries.
Regulations in China
Moreover, the new safety regulations introduced by the Chinese government added to the already dire situation of coal shortage as the new rules restrict coal mines from increasing the production of commodities. Recent floods caused by the adverse climate change forced the closure of some coal mines in China.
Weaker Dollar
Another reason for the sharp rise in the prices of commodities is the weakening value of the dollar. With the US economy as the most stable economy in the world, the dollar is the “benchmark pricing mechanism for most commodities.” With a weakening dollar, the price of commodities experience a rise, and a strengthening dollar results in the fall of the commodity price.
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