China looks to rein in coal prices

“The current price increase has completely deviated from the fundamentals of supply and demand.” — National Development and Reform Comission of China

China’s top economic planner is studying intervening in the coal market as the government tries to rein in a surge in prices threatening energy security and economic growth.

China thermal coal recently ended a surge that’s seen the fuel more than double since the beginning of September amid blackouts and power restrictions. The National Development and Reform Commission said it is reviewing measures to intervene in prices and has “zero tolerance” for those spreading false information or collusion in the market.

“The current price increase has completely deviated from the fundamentals of supply and demand,” the agency said in a statement on its WeChat page. The commission will “study specific measures to intervene in coal prices and promote the return of coal prices to a reasonable range.”

The commission’s statement is the latest in a flurry of activity last week as officials seek to halt the rally in coal, which provides more than half the country’s energy. China has been stung by the global energy crisis, forced to cut power to large industrial users to ensure enough supplies for home heating through the winter.

Vice Premier Han Zheng called for “powerful measures” to curb speculation and hoarding in the energy sector while saying a better market-oriented system for coal and electricity prices will help ensure stable power supply, China National Radio reported Tuesday. Meanwhile Beijing’s state-asset regulator urged coal producers to speed up production at mines with further output potential.

City officials in Yulin, a coal mining hub in Shaanxi province, held a meeting last week to ask state-owned mines there to immediately lower prices, with harsh measures being threatened for any companies that don’t comply, industry publication China Coal Resource reported, without citing its sources.

Qinhuangdao, a key coal port, has reached an agreement with coal miners, power plants and railway operators to cap prices of some supplies at no more than $282 a ton, the Economic Daily reported, citing the country’s top economic planner.

Still, favorable supply and demand dynamics mean there’s a chance coal’s gains could continue, Dennis Ip, an analyst with Daiwa Capital Markets, said in a research note last week. “Coal price hikes are likely to be seen approaching the winter heating season,” he said. Coal provides more than half the country’s energy.