China’s thermal coal recorded worst week in five months on government intervention

>>> THE WIRE - Walk You Through Every Trading Day

China’s thermal coal futures notched their worst week in five months, after Beijing vowed intervention to boost supply and curb surging prices of the commodity.

The most-traded contract on Zhengzhou Commodity Exchange, for delivery in January, hit the lower daily trading limit of 14 per cent and settled at 1,408.4 yuan ($220) a tonne on Friday. That was nearly 30 per cent below a record high hit on Tuesday and down more than 17 per cent for the week, the biggest weekly drop since May.

The most-traded thermal coal futures contract on the Zhengzhou Commodity Exchange, for January delivery, tumbled more than 17% for the week.

The contract later fell by as much as 8 per cent to drop below 1,300 yuan per tonne mark in the night session on Friday, which counts as part of the Monday trading day.

Coking coal shed 11.1 per cent and coke futures dropped 9 per cent on the Dalian Commodity Exchange on Friday, extending losses from prior sessions.

On Friday, President Xi Jinping said China will make efforts to ensure the stable supply of coal and electricity for economic and social use and also called up more exploration and development of oil and gas, state media reported.

Earlier this week, the National Development and Reform Commission (NDRC), China’s top economic planner, put out several statements including it’s studying measures to intervene high coal prices and to guide prices back to a “reasonable range” and to crack down on “excessive profits” at coal firms.

On Friday, the NDRC said it held a meeting with large state-run companies including oil refiner Sinopec, aluminium giant Chinalco and steelmaker China Baowu on “rational” energy usage by industry on Thursday and said they should take the lead in energy-saving and carbon reduction.

The NDRC “has concluded that the unbridled soaring of coal prices is partly driven by those hoping to hit the jackpot by taking advantage of the power supply falling short of actual need”, Chinese state media outlet China Daily wrote on Thursday.

There should be “zero tolerance to the hoarding of coal”, the newspaper added. “It is of the utmost importance to rein in coal prices as they will pose a threat to people’s daily lives when winter sets in.”

China’s coal output is rising after some 153 mines received approvals to expand capacity. As of this week, daily production rose 4 per cent from a month ago to 11.6 million tonnes.

China’s second-biggest mining region, Inner Mongolia, expects its 2021 coal production to exceed 1.05 billion tonnes, state media Workers’ Daily reported, citing an Inner Mongolia conference. This would be up from 1 billion in 2020, according to National Bureau of Statistics data.

However, power plants are still facing difficulties in replenishing stocks ahead of winter demand. Average coal stocks at key Chinese power plants this week stood at less than 80% of the level last year, data from China Coal Transportation and Distribution Association shows.

Coal imports have also been tepid since Wednesday as sellers and buyers wait to see the full impact of Beijing’s policies, traders said.