Caixin
Oct 27, 2021 03:41 AM
FINANCE

China Moves to Blunt Power of Futures Market Over Coal Prices

What’s new: China’s commodity exchange raised margin requirements on thermal coal futures as Beijing steps up measures to tame coal prices in response to a nationwide power shortage.

The trading margin on thermal coal futures contracts for near term delivery will be raised to 40% from 30%, and on longer-term delivery contracts to 20% from 16%, as of Wednesday, the Zhengzhou Commodity Exchange said Monday.

Starting Tuesday, trading fees for thermal coal futures contracts will be raised 50% from September to 120 yuan ($18.80) on each transaction, the exchange said.

The most-active thermal coal contract on the Zhengzhou Commodity Exchange fell as much as 7.6% Tuesday morning to 1,207 yuan ($189) a ton, the lowest intraday price in almost a month.

The margin requirement — a reserve amount that futures traders need to deposit at the exchange — is being raised to suppress speculation and reduce trading activity, lowering the impact of the futures market on spot prices, senior thermal coal analyst Zeng Xiang told Caixin.

At the new levels, the margin requirements and transaction fees will made holding and trading costs less affordable for ordinary investors, Zeng said. After liquidity is reduced, bid-ask spread and holding risks will increase, making investors further avoid trading, he said.

The background: Since late September, many parts of China have suffered severe electricity shortages that have forced factory shutdowns and blackouts, with a plunge in coal supplies, a post-pandemic boom in product exports and the government’s campaign to reduce energy consumption contributing to the shortages.

China is pushing coal mining companies to ramp up production so that power plants can rebuild stockpiles for the winter heating season.

The National Development and Reform Commission (NDRC), the country’s top economic planner, has taken a series of measures to stabilize coal prices. It said last week that it was studying possible intervention in the coal market.

The NDRC said Tuesday that it is “studying the establishment of a coal market price formation mechanism to guide the long-term stability of coal prices in a reasonable range.”

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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