Power shortage risk in China to diminish

The typical seasonal problem in China - the shortage of electricity supply during summer has not been so much fear this year.

Since growth of electricity demand has exceeded the increase of electricity generation capacity in China, serious shortage of power supply were frequently seen during the peak demand season in summer and winter over the past several years.

However, very few power supply shortage were reported during the last winter season in early 2012. Then, sufficient electricity supply against expected demand is expected in the coming summer.

Declining coal prices in China seems to prove the forecast. About 80% of total electricity output comes from thermal power generation. Bulk of thermal power fuels are coal in the country.

Although coal prices should be steady during the second quarter prior to the strong summer electricity demand, current coal market in China continues declining since late 2011 due to the sluggish demand.

Both electricity supply and crude oil processing in China seem to appear steady growth tendencies for a long term. But recent movement suggests the growth is slowing.

The following chart draws transition of year-on-year growth electricity outputs in China. Before mid-2008, growth of power supply had been at 10-17%. It became to 10-15% in 2011 after the turmoil caused by the Lehman shock. The growth rate, however, dipped to the single digit level this year and keeps decreasing month by month.

It looks like right after the Lehman shock. Situation on growth of electricity demand in China seems like serious recession period. Slowing down of gross domestic product could be a natural consequence.

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