Leading Chinese coal producers are expected to cap coal prices ahead of the winter heating season in line with the government's intention to intervene to curb record-high coal costs.
As China generates a substantial share of its electricity production from coal, and as coal prices are reaching record highs, the country faces a soaring energy crisis.
Several factors contributed to the crisis, namely rising international demand as economies reopen, record high coal prices, governmental electricity price regulations, and strict emissions objectives.
With the government’s decree to its state-owned energy companies to secure fuel supply for the winter “at all costs, China is preparing to ramp up coal production.
Following the announcement, four major coal producers announced their readiness to cap coal prices to mitigate the effects of the energy crisis, according to the Chinese daily Global Times.
The daily said that state-owned energy company, CHN Energy, decided to cap the price of 5,500-kilocalorie thermal coal at 1,800 yuan ($281.33) per tonne to bring coal prices back to 'rational levels,' while three others, including China National Coal Group Corporation, Jinneng Holding Group and private-owned Inner Mongolia Yitai Group Co set this target at over 2,000 yuan per tonne.
Meanwhile, China's state planner, the National Development and Reform Commission (NDRC), said last week that it was studying ways to lower coal prices and would take all necessary steps to bring costs within a 'reasonable range.'
Wood Mackenzie principal analyst Rory Simington told Anadolu Agency that the timing of the talks between the NDRC with key Chinese coal miners and utilities to discuss thermal coal prices on Oct. 19 came after a substantial increase in prices.
'The talks came as the QHD spot price (China’s seaborne thermal coal price marker, the Qinhuangdao 5,500) increased by an astounding RMB1,000 per tonne during the first 20 days of October, to around RMB2,500 per tonne,' Simington said.
He stressed that although China has approved over 200 million tonnes per annum (Mtpa) of new capacity since late September, demand is still outpacing supply.
'The latest announcement aligns with unconfirmed news we have recently heard, specifically that the NDRC met with large traders in the northern ports on Oct. 16 and recommended they cap the price for QHD 5,500 at RMB1,800 per tonne this winter. On Oct. 19, the State Energy Group promised to sell its coal at below this price,' he explained.
Simington also noted that many mines in Shanxi, Shaanxi and Inner Mongolia provinces cut their mine gate prices by RMB100 per tonne on Oct. 20, following a request by the NDRC.
'Futures prices have subsequently declined to around 1400 RMB per tonne for the January contract (from 1850 RMB per tonne on Oct. 19). However we think this is sentiment-based rather than a change in the fundamental drivers of the market,' he noted.
By Ebru Sengul Cevrioglu