Top producers vow to cap coal prices, drive up output in China
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Some of China’s major coal producers have vowed to cap thermal coal prices this winter and next spring, after the government asked state-backed firms to ensure stable coal and power supply “regardless of costs.”
China’s thermal coal prices have surged over 200 percent this year to record highs as rising energy demand, mining safety inspections and floods at major mining regions hurt supplies.
China Energy Group and Shanxi Jinneng Holding Group, the No. 1 and No. 8 coal miners by production in the country, have said they will drive up output and guide prices back to a “reasonable range.”
They have vowed to keep spot prices of thermal coal with an energy content of 5,500 kilocalories delivered to Bohai Bay in northern China below 1,800 yuan (US$282) per ton, and prices of 5,000 kilocalorie and 4,500 kilocalorie coal at up to 1,500 yuan and 1,200 yuan, respectively.
Prices of other thermal coal with higher calorific values will not exceed 2,000 yuan a ton, the firms said in statements issued late on Tuesday.
Some other state-backed coal miners in China’s top coal mining region of Shanxi and Inner Mongolia are also rolling out a similar price cap plan, two traders said on condition of anonymity.
Longmay Mining Holding Group Co Ltd, the largest coal producer in northeast Heilongjiang Province, started to build four new mines yesterday. Sun Chengkun, the firm’s board chairman, said that the new projects in Jixi, Shuangyashan, Hegang and Qitaihe cities would add more than 4 million tons of annual coal production capacity.
Vice Premier Han Zheng has called for “firm measures” to strictly regulate coal price speculation.
The state asset watchdog has also urged state-backed firms to prioritize coal supplies and asked power plants to build up feedstock inventory “regardless of costs.”
The National Development and Reform Commission said that government intervention in coal prices was discussed at a meeting of key producers, given that the “current price increase has completely deviated from the fundamentals of supply and demand.”
“The heating season is approaching and the price is still showing a further irrational upward trend,” it said.
The harsh statement triggered a sell-off in energy futures yesterday. The most-traded thermal coal contract on the Zhengzhou Commodity Exchange, for delivery in January, fell to 1,755.40 yuan (US$275) a ton, having touched an all-time peak of 1,982 yuan in Tuesday’s daytime session amid a widening power crunch and the onset of cold weather.
The 8 percent drop in coal futures was the steepest plunge since August, although prices are still up some 260 percent year-to-date. On the Dalian Commodity Exchange, prices for steelmaking raw materials, coke and coking coal fell around 9 percent.
In a separate statement, the NDRC said it would ensure coal mines operate at full capacity and aim to achieve an output of at least 12 million tons per day.
It put the production rate at a 2021 high of over 11.6 million tons as of October 18, up more than 1.2 million tons from late September after an all-out effort to boost supply that has included approvals for new coal mines.
In a third statement, the NDRC said the Zhengzhou exchange should pay close attention to coal price fluctuations and said it would step up supervision of prices, while cracking down on speculation — something the Chinese authorities have repeatedly blamed for high commodity prices this year.
The Zhengzhou bourse said that from yesterday’s night session it would raise the trading limit on thermal coal contracts to 10 percent and imposed limits on some members’ trading positions.
Thermal power still takes up a large share of China’s energy output, accounting for about 70 percent of its power generation. The heating season has added pressure on power supply in north China.
The country is making all-out efforts to ensure power supply after power outages halted factory production and hit families in some regions. China’s daily coal production was at 11.6 million tons as of October 18, versus about 11.2 million tons last month.
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