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Monday, January 28, 2008

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China, the world's biggest energy user after the U.S., said the heaviest snowstorms in decades have disrupted coal shipments, causing ``very serious'' power shortages in half of the country and delaying flights.

China, which generates 78 percent of electricity with coal, shut 5 percent of the country's coal-fired power plants after snowstorms delayed fuel deliveries, making it ``difficult'' to stabilize energy supplies, the National Development and Reform Commission said today. The problem may persist in some regions throughout the year, the country's top planning agency said.

China's fifth year of power shortages may add pressure on Premier Wen Jiabao to lift caps on coal, gasoline and electricity prices, undermining efforts to curb the worst inflation in 11 years. Snowstorms, which grounded flights in Shanghai and closed eastern Chinese highways, may disrupt travel plans during next week's Lunar New Year, when more than 2 billion trips are made.

``Energy shortages and transportation bottlenecks are likely to aggravate inflation pressures in China in the short term,'' Goldman Sachs Group Inc's senior economist Liang Hong said today. ``These latest developments will likely push up near-term CPI inflation to levels that will be very uncomfortable for policy makers and China's investors.''

`Enormous' Shortage

Inflation was near an 11-year high last month at 6.5 percent, forcing the Chinese central bank to raise interest rates six times last year to curb spending. The government also capped the prices of food, public transport and ordered banks to reduce their lending.

China's 2007 electricity demand jumped 14 percent, as the fastest economic growth in 13 years spurred new factories, shopping malls and offices. Power shortages have affected 17 Chinese provinces, or half of the country, the Chinese planning commission's spokesman Zhu Hongren said today. Closures of coal- fired power plants forced 13 provinces to ration power, figures from State Grid Corp. of China showed on Jan. 23.

``The shortage is close to 39.9 million kilowatt hours, an enormous number,'' Zhu said today in Beijing. ``The main cause is the shortage of coal. Power plants are all working against the clock to get more coal delivered.''

To ease the shortage, coal shipments were increased by 2,000 to 36,000 train carriages a day on Jan. 26, Railway Minister Liu Zhijun said at a conference yesterday, according to minutes released by the government. That's 30 percent more than the increase at about the same time last year, he said.

Dwindling Stockpiles

Coal stockpiles at 90 power plants in central and northern China have dropped below the ``caution line'' of three days' requirements, State Grid said. The shortage may ease after the Lunar New Year holidays, which start on Feb. 7, when weather conditions may improve according to forecasts, Li Xiaochao, spokesman for the National Bureau of Statistics, said on Jan. 24.

``Other factors also contributed to the shortage, namely the various government controls of energy prices and transport bottlenecks,'' said Goldman's Liang. ``Bringing down inflation appears to be top of the macro policy agenda this year. Bad weather and bad policy choices have made this goal even more difficult to attain.''

China's coal production rose 9.4 percent last year to 2.3 billion tons, the statistics bureau said on Jan. 25. Exports of the fuel dropped 16 percent and imports jumped 33 percent in 2007, leaving the nation with 2 million tons of net exports, according to customs data.

Effects of Snowstorms

Snowstorms in central China's Hunan, Guizhou, Anhui and Jiangxi provinces were the worst in decades, affecting industrial production, the China Meteorological Administration said.

Electricity shortage may force smelters to cut their aluminum production by up to 200,000 tons, Beijing Antaike Information Development Co.'s chief analyst Wang Feihong said.

``About 800,000 metric tons of annual aluminum production capacity might be affected,'' Wang said in a phone interview today in Beijing. ``Assuming that the power shortages last three months, aluminum output this year will be 200,000 tons less than our earlier forecast.''

Zhuzhou Smelter Group Co., China's largest zinc smelter, had cut production since mid-January because of power shortages, said the company's trading managing director Wang Jianjun.

Snow delayed up to 35 percent of flights from two airports in Shanghai, China's financial hub, the airfields' operator said. At the railway station in Guangzhou, southern China's largest city near Hong Kong, 170,000 passengers were stranded for 24 hours yesterday after snowstorms in northern China threw the train schedule into chaos, Xinhua News Agency reported.

Jiangsu Expressway Co., the biggest operator of toll highways in eastern China, said it's allowing only trucks to get on to roads to reduce the potential for accidents and fatalities, according to a statement on its Web site.

Damaged Power Lines

Power lines linking the Three Gorges hydroelectric dam in central China's Hubei province to Shanghai were damaged in snowstorms, Xinhua said today, without saying when the lines were expected to be repaired.

``The difficulty in ensuring stable supplies of coal, electricity, oil and transportation is increasing,'' the planning commission's Zhu said.

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