China to intervene in coal prices, coal-producing city Yulin cut coal prices

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China will intervene in high coal prices and will impose severe punishment on those involved in coal speculation after government measures in the past few months have failed to curb the runaway coal prices.

The National Development and Reform Commission (NDRC), China’s top economic planner, said that it held a meeting with key coal miners, the China National Coal Association and the China Electricity Council on Tuesday to study measures to intervene in coal prices in accordance with the law, according to a statement late on Tuesday.

The intervention will be conducted in accordance with China’s Price Law, which rules that when prices of important commodities and services rise significantly or will likely rise significantly, the State Council and local governments can take steps to intervene, such as limiting price difference of profit margin, cap prices, requiring declaration before price hikes and registration for price adjustments, etc.

The coal prices have been out of touch with fundamentals and as the heating season approaches, the prices are still in an irrational rising trend, the state planner said, pledging to take all necessary measures to bring coal prices back to a reasonable range, promote a rational coal market and ensure secured and stable energy supply.

The NDRC also said that it sent a working team to the Zhengzhou Commodity Exchange on Tuesday to study thermal coal futures’ price trend and pledged to stepping up regulation and severely punishing those involved in malicious speculation of thermal coal futures.

Separately, the state planner held a meeting with key companies in coal, power, oil, gas and transportation industries, urging them to boost energy supply. All coal mines are required to produce at full capacity in the fourth quarter, they are required to conduct normal operation during holidays and major events and shutting down coal miners across a region just only due to individual accidents is banned, it said.

China aims to bring daily coal output above 12 million tonnes, rising 3 per cent from the daily output on October 18, the NDRC said.

The latest statements sent coal futures tumbling on Tuesday night. Thermal coal futures contracts on the Zhengzhou Commodity Exchange all hit limit-down, with the most-traded January contract slumping 8 per cent to 1,755.4 yuan per tonne.

Before the NDRC’s statement Tuesday night, some major coal-producing regions had already introduced measures to limit coal prices. Earlier on the day, authorities in Yulin, Northwest China’s Shaanxi province, proposed to lower all selling prices of coal by 100 yuan per tonne from the current level, starting from Tuesday afternoon, according to local authority.

In addition, the authority caps the coal prices for the long-term supply agreement at 1,500 yuan per tonne for private-owned coal miners and at 1,200 yuan per tonne for state-owned coal miners, it said.

People from local coal miners said that they have signed Letter of Commitment with Yulin local government. According to the Letter of Commitment of one coal miner, the company promised to fulfil the above-mentioned commitment, starting from 6 pm on October 19, and it will take punishment if it fails.

Yulin, one of the major coal-producing cities, produced 571 million tonnes of coal in 2020, accounting for 13.2 per cent of China’s total output.

A person from a state-owned coal mine said that, as the price of its 5,700 kcal/kg thermal coal had been raised to above 900 yuan per tonne, the 100 yuan cut will represent a 11 per cent price cut.

The latest government move came as coal prices have been surged despite the authorities’ measures to boost supply to curb the runaway coal prices.

According to data from Cinda Securities, as of October 15, pithead price of 6,000 kcal/kg thermal coal in Yulin stood at 1,810 yuan per tonne, surging by nearly 20 per cent from the previous week. Data from the China Electricity Council showed that, the CECI 5500 kcal/kg thermal coal price index hit 1,457 yuan per tonne as of October 15, surging by 34.2 per cent from the previous week.

In addition, spot prices of 5,500 kcal/kg thermal coal at Qinhuangdao port had jumped above 2,200 yuan per tonne last week to hit a new record high, according to Kaiyuan Securities.

Industry insiders say that thermal coal prices are likely to rise further as the market shortage is unlikely to be eased in the short term. The expectation for higher prices has sent thermal coal futures soaring. On Tuesday, the most-trading thermal coal futures contract, for January delivery, jumped above 1,900 yuan per tonne to hit a new record high.

In addition to measures in coal-producing regions, the NDRC has also urged more efforts to stabilize coal prices at ports. The state planner called on coal companies to promise to keep prices of 5,500 kcal/kg, 5,000 kcal/kg and 4,500 kcal/kg thermal coal at ports no higher than 1,800 yuan per tonne, 1,500 yuan per tonne and 1,200 yuan per tonne. The China Energy Investment Corporation and Jinneng Holdings Power Group Co.,LTD, the top two coal miners in China in terms of output, on Tuesday signed the Letter of Commitment to cap the prices, according to the China Coal Transportation and Distribution Association.

Even with the cap, coal prices remain sharply higher than the same period in previous years. Take port coal prices as an example. The NDRC proposed to cap the price at 1,800 yuan per tonne, which is 184 per cent higher than the same period last year.