Caixin
Oct 28, 2021 04:02 AM
CHINA

China’s Coal Futures Continue Dropping Amid Price Cap Talk

Mines in Shanxi, Shaanxi and Inner Mongolia — the top three coal producing provinces in China — started to lower pit-head prices Oct. 19.
Mines in Shanxi, Shaanxi and Inner Mongolia — the top three coal producing provinces in China — started to lower pit-head prices Oct. 19.

China’s thermal coal futures fell by the daily limit of 10% Wednesday as the country’s top economic planner reportedly is moving to cap the price of the fossil fuel to ease a power shortage.

The most-active thermal coal contract on the Zhengzhou Commodity Exchange fell to 1,144.6 yuan ($177) a ton, extending a week-long decline that drove the contract down 30.5% in a week.

The National Development and Reform Commission (NDRC) at a meeting Wednesday discussed plans to set the price of the most-popular, 5,500-NAR grade of coal at 440 yuan a ton at the pit-head, with a maximum increase of 20% to 528 yuan a ton, Bloomberg reported, citing people familiar with the situation.

The price under discussion would be 60% lower than the current market level. On Sept. 30, mines in Datong, Shanxi province, quoted the 5,500-NAR grade coal at 1,400 yuan at the pit-head, compared with 410 yuan a year ago.

The pit-head price is what coal mines charge out of mine pit, which doesn’t include loading fees or any other extra charges. The final selling price is determined by provincial governments based on the pit-head price and distribution costs. The price cap is scheduled to take effect by May 1.

A person close to the NDRC, China’s top economic planning commission, confirmed the plan with Caixin but said it has not been finalized and is subject to approval by the State Council, China’s cabinet.

At the request of the NDRC, mines in Shanxi, Shaanxi and Inner Mongolia — the top three coal producing provinces in China — started to lower pit-head prices Oct. 19.

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.”

The government of Ordos, Inner Mongolia, at a meeting Wednesday ordered that the pit-head price of 5,500-NAR grade coal in the area be lowered to less than 1,200 yuan per ton. State-owned Shanxi Coking Coal Group pledged Wednesday that it will supply the coal at no more than 1,200 yuan per ton during the winter heating period. Shaanxi Yulin energy bureau in a document Wednesday set a similar price cap for local mines.

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

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

The Zhengzhou Commodity Exchange raised the trading margin requirement on its thermal coal futures contracts Monday to 40% from 30%. The increased margin requirement — a reserve amount that futures traders need to deposit at the exchange —will suppress speculation and reduce trading to minimize the impact of the futures market on spot prices, analysts said.

Benefiting from increased production and lower coal prices, coal inventories at power plants have rebounded. Coal supplies at power plants nationally have exceeded consumption for 20 consecutive days since Oct. 5, according to the NDRC. As of Oct. 24, coal inventories at major national power plants could last 17 days.

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

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