China's coal demand has global effect
A power plant workers collects coal to test in Chongqing Municipality, China.
TEXT OF INTERVIEW
Renita Jablonski: So as we mentioned at the top, oil hit a new high of $135. Analysts say another reason crude has been boosted in recent days is because of very strong demand for diesel in China. Power plants in some areas are running desperately short of coal.
Marketplace's Scott Tong joins us from Shanghai. Scott, how serious is the current shortage?
Scott Tong: The central government says there are 32 power stations that are doing nothing, they're idling right now, because there's such a big coal shortage in China. And in many parts of the country, including Beijing, the power stations have less than a seven-day stockpile, which is considered dangerously low. So the big worry is China is vulnerable to a disruption -- power blackouts, that kind of thing.
Jablonski: So what's happening here, why can't these power plants get enough? Is it another supply issue?
Tong: A lot of it is on the supply side. China has a fair amount of coal, but what it's done in the last few months is shut down a lot of the small, dangerous mines. The other issue is transporting it. We just had this terrible earthquake in China, and the transportation links are giving the top priority to rescue items like tents and food. The other thing that's going on in China is power plants don't really want to buy it, because it's really expensive and they sell electricity at a loss because there are price controls right now in China.
Jablonski: So with those energy issues happening in China, stepping back, what is the global affect on energy prices here?
Tong: Well, all of them are up, and coal is certainly part of it. Part of it is the substitution effect -- you know, when coal is expensive in China or it's in short supply, some power plants use something different, they use diesel. And so that comes from crude, so that ends up pushing the price of crude. And so that affects your price at the pump and it affects the, how power plants are operating here in China. Now, the flip side of that in the United States is it's really good for the coal-mining industry, in Wyoming and in Appalachia in the States.
Jablonski: Where does China's huge appetite from coal come from?
Tong: Well, they don't call it the world's factory for nothing. It's the number two electricity user in the world. So when China starts to import whatever it is in large quantities -- whether it's coal or oil or soy beans -- it has a big affect on world prices.
Jablonski: Marketplace's Scott Tong joining us from Shanghai. Thank you, Scott.
Tong: OK, Renita.