China's coal crisis deepens as winter cold drives prices to record highs

The cold arrived early in China, and the country's energy system felt the shock immediately. By mid-October, as winter winds pushed down from the north, coal prices had climbed to levels no one had seen before. The most-active thermal coal futures contract—the benchmark that power plants watch closely—hit 1,669.40 yuan per tonne, or about $259. It was a record. The contract had more than doubled in value over the course of the year, a climb that reflected something deeper than seasonal weather: a collision between surging demand, constrained supply, and a nation trying to heat itself while managing an economy still roaring back from the pandemic.

The cold snap itself was severe enough to matter. Meteorologists predicted that temperatures in central and eastern regions would plummet by as much as 16 degrees Celsius over the next two or three days. That kind of drop meant furnaces would run harder, thermostats would climb, and the grid would strain. Electricity demand for heating homes and offices was expected to spike sharply. But the weather was only the trigger. The real problem had been building for months.

Since September, power rationing had taken hold across at least 17 of China's 30-plus regions. Factories had begun shutting down production lines. Supply chains that fed the global economy—steel, aluminum, cement, chemicals—were starting to fray. The shortage had multiple causes: coal supplies were tight, industrial demand had rebounded faster than anyone anticipated after the pandemic, and environmental policies aimed at reducing reliance on coal had tightened the market further. Now, with heating season beginning in the three northeastern provinces of Jilin, Heilongjiang, and Liaoning—regions that had already suffered acute shortages the month before—the pressure was mounting.

Beijing had been trying to manage the crisis. The government raised domestic coal output, cut power to energy-intensive industries during peak demand hours, and repeatedly promised that winter heating supplies would be secured. But the measures had limits. Analysts and traders were forecasting that industrial power consumption would drop by 12 percent in the fourth quarter as coal supplies continued to fall short. Local governments, facing political pressure to keep homes warm, were giving priority to residential users over factories. That meant manufacturers would bear the brunt.

On October 15, the government took a significant step. It announced that coal-fired power prices could now fluctuate by up to 20 percent from their base levels—a bold move in a sector that had been tightly regulated for decades. The policy was meant to let power plants pass more of their rising generation costs to commercial and industrial customers. In practice, it meant that steel mills, aluminum smelters, cement plants, and chemical producers would face higher and more unpredictable electricity bills. Their profit margins, already under pressure from rising raw material costs, would compress further. Factory-gate inflation had already hit a record high in September, and this new policy would likely push it higher.

The broader context made the crisis more than a domestic problem. China still relied on coal for the bulk of its electricity, despite ambitious goals to become carbon neutral by 2060 and to peak emissions by 2030. The government had been pushing hard toward wind, solar, and hydropower. But the transition was incomplete, and coal remained essential. The energy crunch was not unique to China—other nations were grappling with fuel shortages and blackouts—but it illustrated a fundamental tension: the world economy still ran on fossil fuels, and cutting that dependency while maintaining growth and stability was proving far harder than climate pledges suggested. As world leaders prepared for climate talks in Glasgow the following month, China's winter energy crisis was a live demonstration of how difficult the transition would be.