China wields political might to cool coal prices, but winter looms

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BEIJING, Nov 12 (Businesshala) – In just 10 days after a storm of meetings and official notices, Chinese regulators last month nearly halved domestic price hikes for thermal coal, the source of electricity for the world’s No. 2 economy. is the main source.

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Beijing’s interventions outlined the limits – and some limits – of its regulatory power, but the country still faces the daunting task of keeping fuel cheap and abundant during the winter.

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The price of thermal coal – which accounts for about 60% of China’s electricity needs – more than tripled in the 12 months to mid-October after steps to curb overproduction accelerated post-pandemic industrial demand for electricity.

As rising prices forced power producers to curb production, rationing electricity and stymied economic growth, Beijing rushed to boost production here and here on billboards from price targets. Took action and measures up to investigation of data providers.

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The most-traded thermal coal futures on the Zhengzhou Commodity Exchange fell in 10 days after hitting a lifetime high on October 19, and were down 56% from that mark on Friday.

Spot physical prices of coal at the southern port of Guangzhou also fell sharply and are now down about 44% from October highs. However, prices for both are up over 60% so far this year.

“No other country could have achieved similar results given the scale and timeline,” said Steve Hulton and Fabian Roningen, analysts at consultancy Rystad Energy.

“It really shows the power of the Chinese authorities over the domestic coal market and the economy in general.”

With prices crashing in major coal exporters Australia and Indonesia in recent days, a raft of interventions has spread to the global coal market, and has made market participants wary of further regulatory intervention.

Analysts and traders said as colder temperatures across China spur heating demand and require more coal, Beijing could face pressure to manage the country’s electricity-generating fuel supply and costs by 2022. .

‘steady decline’

To reverse a months-long climb in the price of coal, Beijing held dozens of meetings with producers, utilities, railway operators and industry associations, prompting a flurry of market missives and warnings.

Some 71 electricity-related documents were issued by 32 national and local government bodies in October alone, according to a summary circulated among traders, with chilling trading activity in coal futures, open interest in coal and declining volumes on the Zhengzhou Exchange. .

“‘Never fight the regulators’ is the mantra,” said Kevin Xu, senior Asia economist at the Commonwealth Bank.

Miners were urged to reverse course after years of attempts to curb overcapacity by shutting down reserves of inefficient, low-yielding or environmentally harmful coal.

So far, Beijing’s Kajoling has acted, the country’s state planner said, with daily coal production reaching a record high of 12.05 million tonnes on November 10.

Traders who attended a meeting called by the National Development and Reform Commission (NDRC) on November 3 said that now the message from the top economic planner was that coal prices should not fall too far and not too fast.

“With more coal capacity released and production continuing to increase…coal prices are expected to continue to decline,” the NDRC said on Sunday.

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The recent surge in fresh coal mine supplies and regulatory changes that allowed power producers to pass on higher prices here have helped increase power generation for homes and ease the number of power restrictions that took effect from September.

But given the signs of strength in the market, analysts are eyeing China’s coal reserves.

According to the China Coal Transportation and Distribution Association, total coal inventories held at major ports across China – a measure that reflects both domestic production and imports – stood at 52.4 million tonnes in October. This is up 1.8% from September, but about 20% below the October average from 2017 to 2020.

Caixin Data Technology Co.

Supply could also be strained in the coming winter, especially in opencast mines that could be hit by heavy snowfall – raising questions about the sustainability of the recent increase in production.

And with summer demand now set to climb as winter sets in, China’s State Grid Corp warned on Sunday that there would be a “tight balance” between electricity supply and demand by spring.

Analysts at Rystad Energy expect prices to continue to fall in the short to medium term, but cautioned that “the thermal coal market is still very tight, so any supply disruptions or extreme winter weather events can easily ease prices.” can be sent back again.”

“We expect the price volatility to be higher,” he said.

What is clear is Beijing’s commitment to driving the market, said Yu Aikun, a researcher at the US-based Global Energy Monitor think tank.

“The government can do whatever it wants in the market,” he said.

Reporting by Shivani Singh and Muyu Xu in Beijing, Emily Chow and David Stanaway in Shanghai and Aizu Chen in Singapore and additional reporting by Beijing Newsroom; Editing by Gavin Maguire and Richard Pullin

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