China power crunch slams factories as coal lobby warns 'not optimistic' on supply

Small firms caught in China's prolonged power and coal crunch are turning to diesel generators, or simply shutting shop, as coal officials voiced fears for stocks ahead of winter and manufacturing shrinks in the world's no. 2 economy.

Beijing is scrambling to send enough coal to electricity utilities to restore full supply, with the worst power outages in years affecting large swathes of the country , especially three northeastern provinces, including Liaoning that are home to nearly 100 million people.

The shortages, now well through their second week, have been triggered by a lengthening surge in the price of coal, China's no. 1 source of fuel to produce electricity, which is now hovering near record levels amid tight supply, tougher emissions standards and strong manufacturing demand up to now.

Business owners in Liaoning's capital city, Shenyang, told Reuters on Thursday they were losing money, as official data separately showed the country's official measure of manufacturing contracted in September - for the first time since February 2020.

The strain on firms comes as the China Coal Industry Association warned in a statement that coal inventory at power plants is low, and it is "not optimistic" ahead of the winter peak demand season.

The association said it had asked companies to "spare no effort" to increase supply, and adjust sales strategy to those non-key, high energy consumption or non-long-term agreement signed users.

Employers at an industrial laundry facility in Shenyang that Reuters visited Thursday had switched to diesel power generators due to the power crunch and was losing money.

At a steel parts factory that has been shut down for last few days, staff said they chose not to rent a generator but may do so if the crunch continues.

Beyond cities and factories, China's farmers are also facing hefty losses, analysts and industry participants said, after the power outages hit production of key ingredients for animal feedstocks.

Officials this week have repeatedly sought to assure residents that there will be power for household use and for heating as winter approaches.

But Citi analysts said in a note they expect China's power shortages to persist in the winter, when demand for heating - mostly using coal-fired power - hits its peak.

China's state planner, the National Development and Reform Commission (NDRC), said on Wednesday the government would not stop electricity prices from floating within a reasonable range and would let them reflect market fundamentals and changes in cost.

In key industrial hub Guangdong province, in the south, a statement issued by the Guangdong Provincial Development and Reform Commission in late August said the plan was to increase power tariff by 25% during peak load period for non-residential users.