China’s thermal coal futures tumbled 47% in eight days, regulators meet to discuss measures to intervene in coal prices

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China’s thermal coal futures tumbled for the seventh consecutive trading day on Wednesday as regulators met to discuss measures to intervene in coal prices.

The most-traded thermal coal futures contract on the Zhengzhou Commodity Exchange, for January delivery, tumbled by the daily limit of 13 per cent on Wednesday night to hit 1,033.8 yuan per tonne, slumping by 948.2 yuan per tonne or 47.8 per cent from the record high of 1,982 yuan per tonne set on October 19.

The market sell-off came after regulators announced a raft of measures to boost coal production and crack down on speculation to curb runaway coal prices.

The National Development and Reform Commission (NDRC), the top economic planner, said on Wednesday that it held a meeting to discuss measures for coal price intervention.

The NDRC met the China Coal Industry Association and key coal companies about coal market and prices and discussed measures to intervene in coal prices, including the scope of the intervention, the approach, the price, implementation schedule, etc, according to a NDRC statement on Wednesday.

The NDRC will closely monitor the coal market and coal price trends and conduct further research on intervention measures, it said.

Industry insider told Yuan Talks that the regulators will likely to conduct intervention in pit-head and sale prices of thermal coal before May 1 in 2022.

They say that, under the discussed plan, pit-head prices of 5,500 kcal/kg thermal coal will likely be allowed to fluctuate upside from the base price of 440 yuan per tonne by up to 20 per cent, which means regulator may cap the price at 528 yuan per tonne. Selling prices will be determined by local governments based on pit-head prices, logistics costs, etc, they said.

A source close to the NDRC confirmed the plan, but noted that it hasn’t been finalized and will be subject to approval by the State Council.

China’s 5,500 kcal/kg thermal coal prices are currently above 1,000 yuan per tonne. According to data from the China Coal Industry Association, pit-head price of 5,500 kcal/kg thermal coal in Datong city, Shanxi province, stood at 1,400 yuan per tonne on September 30, compared to 410 yuan per tonne in the same period last year.

On October 19, the NDRC officially announced the plan to intervene in coal prices according to the Price Law, sending thermal coal futures plunging. Within one week, the state planner issued 14 documents about boosting coal production and curbing coal prices.

The government moves have yielded some results. According to data released by the NDRC, China’s average daily coal output has increased by more than 1.2 million tonnes from September-level to hit the highest so far this year.

Many coal mines in Datong, Shuozhou, East Inner Mongoilia, Ordos and Yulin have lowered pit-head coal prices by more than 100 yuan per tonne, with price cut up to 360 yuan per tonne in some regions, according to the NDRC.

On October 26, the NDRC held another meeting requiring pit-head thermal coal prices to be cut further and some coal production regions have taken actions in response to the latest call.

On October 27, Ordos in Inner Mongolia required local coal mines to cut pit-head prices of 5,500 kcal/kg to below 1,200 yuan per tonne.

Several coal miners in the main production hub Shanxi province, including Jinneng Holding Group, Shanxi Coking Coal Group Co., Ltd, Lu’an Chemical Group Co., Ltd and Huayang New Material Technology Group Co., Ltd on Wednesday promised to keep pit-head price of 5,500 kcal/kg thermal coal this winter and next spring no higher than 1,200 yuan per tonne, according to the official Xinhua News Agency.

Energy authority in Yulin, Shanxi province, also announced same requirements.

Driven by the rise in coal output and falling prices, coal inventories at power plants have been rebounding. According to the NDRC, daily coal supply to China’s power plants have exceeded daily coal consumption for 20 consecutive days since October 5. Coal inventories at the power plants reached 95.69 million tonnes on October 24, equivalent to 17 days’ coal consumption and rising by 17 million tonnes from the level at the end of September.