China issues new warnings over provincial energy use

China's top economic planning body the NDRC has issued new warnings to some local governments that missed targets to control energy intensity in the first half of this year.

Nine provinces or regions — Guangdong, Jiangsu, Yunnan, Fujian, Shaanxi, Guangxi, Ningxia, Qinghai and Xinjiang — have been issued code red warnings after increasing their energy intensity in January-June. These provinces must suspend approvals of new energy-intensive projects for the rest of the year, the NDRC said.

Seven of these provinces, as well as Hubei, also "severely" missed their targets to cap energy use in the period, the NDRC yesterday. Another 10 more provinces were issued less severe warnings after failing to cut their energy intensity by the required amounts.

The NDRC reiterated that China has a binding target to cut energy use per unit of GDP by 3pc this year compared with 2020. But its warnings do not appear to be having the desired effect. The number of provinces that received code red warnings is up from seven in the first quarter, with Jiangsu, Fujian and Shaanxi added to the list and Zhejiang removed.

It is unclear how flexible the NDRC will be with its targets to control energy intensity and cap volumes, given the low base in 2020 because of the Covid-19 outbreak. Electricity demand growth in most provinces that were issued red alerts exceeded the national average in January-June, resulting in the provinces missing both the energy cap and intensity targets.

Those provinces also have a higher-than-average elasticity factor — growth in power use divided by growth in GDP. The factor in Shaanxi and Qinghai is over 1.9 while in Guangdong and Yunnan it is more than 1.7, far above China's average of 1.28, according to Argus' calculations.

Output controls

China has been pushing policies to control production of commodities such as crude steel, oil products and ferro-alloys this year, although actual output in key emissions-intensive sectors still increased in January-June.

China raised export duties on some ferrous metal products from 1 August to shore up domestic steel supplies as part of a push to keep 2021 steel output flat with 2020 levels. State-owned steel mills have been ordered to cut output and exports.

Ningxia province ordered producers in energy-intensive industries to reduce output to control energy consumption after receiving the earlier warning from the NDRC. The local government in Zhongwei city told 22 steel, ferro-alloys, calcium-carbide and silicon-carbide producers to restrict output from 3 June to 31 December.

Oil refineries received lower crude import and oil product export quotas in the latest government releases this month, while Beijing has also imposed taxes on blendstocks and carried out inspections at state-owned oil majors over resales of imported crude.