China may impose price cap on coal coal prices

4 minutes
China may impose price cap on coal coal prices

- China's efforts to control raw materials costs could include prices limits on its runaway coal market, underscoring the government's tough stance on taming inflation.

Beijing is considering imposing a cap on the price of thermal coal as it struggles to contain stubbornly high energy costs ahead of peak demand over the summer. The move would be the latest in a largely unsuccessful campaign across commodities that began in April to prevent inflationary pressures harming economic growth.

One idea under discussion regarding coal would be to limit the price at which miners sell, according to people familiar with the plan who refused to be named because of the matter doesn't work. Yulin, a major production base in the northwestern Shaanxi Province, is already testing a price cap, according to one of the people mentioned.

Another is to enforce a limit of 900 or 930 yuan on the benchmark price at the port of Qinhuangdao, which would affect other markets nationwide, said the people. Under this scenario, power plants would be told by the authorities that they can't buy coal above this level. The second plan is currently being tested at the port by some state-owned generators, said one of the people.

No final decision has been made on whether to adopt price controls and the plans are subject to change, said the people. A fax to the National Development and Reform Commission, China's top planning agency, did not get a response.

The mineral futures in Zhengzhou eased after the news of a possible price cap, as did the shares in the nation's largest miner, China Shenhua Energy Co.

During May 19th, the Qinhuangdao price hit a new 962 Yuan record on 19.05. It has since fallen to 86 yuan a ton - still well above the historical average of 547 yuan - after the government ratcheted up its attempts to deflate what it believes is a commodities bubble fueled in part by speculators and hoarders.

China consumes predominantly its own coal and the supply chain is controlled by state-owned firms. But the precedent of imposing price controls may still rattle other commodities markets that depend on imports and the private sector, given Beijing's broader scrutiny of last year's record-setting rallies in iron ore and corn.

In recent weeks, the global industrial commodities traded in China have fallen to all-time highs after the boom in prices lifted the producer inflation in May to its highest since 2008. In its latest effort to prevent consumers from feeling the pinch, the NDRC will increase state stockpiles of pork and harden oversight of other markets for staple foods.

The coal market has risen this year due to a combination of factors including the strong economic recovery from the pandemic, the shutdown on domestic production following a series of fatal accidents and the government controls on imports.

China has tried price controls on coal as previously, according to local media. In December, the NDRC asked power companies to cap their starting price at 640 yuan per ton after the cost of fuel was increased, Futures Daily reported.

The chance now is that supply continues to outstrip demand just as cooling demand peaks over the summer and regulators threaten to shut more mines to prevent accidents as the nation prepares to celebrate the 100th anniversary of the founding of the Communist Party next month.

In the recent years, China has tried to prevent price levels in a so-called green zone of 500 to 570 yuan a ton, with intervention of some kind all but guaranteed if prices breach 600 yuan. But the market has run so far ahead of these levels that a raised, if not firmer, cap may be considered now necessary.

The Power Crisis of last winter also fresh in the minds of regulators is the power crisis, when unusually freezing industrial production and strong weather created shortages of coal and gas, causing energy markets to chaos.

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