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Government intervention lowers coal prices in China 11% for thermal coal and 8.8% for coke

  • 21 October, 2021
  • 4:27 pm EEST

China’s coal futures fell amid signs of government intervention to bring record coal prices back to a reasonable range before the start of the winter season.

At the start of trading on the Zhengzhou Commodity Exchange on Thursday, the most-traded thermal coal futures contract fell to the maximum allowed by 11% at 1,587.4 yuan ($248.28) per ton, extending losses incurred on Tuesday when Beijing indicated it might intervene. to cool down prices.

This came after it touched an all-time high of 1982 yuan per ton in Tuesday’s session, although year-to-date futures prices are still more than 3 times higher.

While coke on the Dalian exchange fell 8.8% to 3,220 yuan per ton, coke futures fell 4.8% to 3,964 yuan per ton, which increased losses on the exchange, according to Reuters.

 

Government Intervention

The recession came after the National Development and Reform Commission, China’s economic planning agency, said it would study intervention measures if coal prices continued to rise.

It added that it had organized a meeting with China’s largest coal producer in a bid to ease pressure on the industry.

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The Committee considers that the crazy increase in prices deviated from the basics of supply and demand, and it will take all necessary measures to control the high prices with the approach of the winter season.

According to the commission, Chinese law allows the State Council, the Council of Ministers and regional governments to intervene to reduce profit rates and put an end to irrational prices.

It pledged to take strict action against any irregularities and to maintain market order.

While economists explained that despite fluctuations in coal prices; Electricity, labor and other costs are expected to continue to rise and will be felt by the end consumer.

 

Reliance On Coal

China relies on thermal coal to generate electricity, however, the government has closed many coal mines to cut carbon emissions.

With domestic supply shortages increasing, Beijing has pushed miners to ramp up production and increase their imports so that power plants can rebuild stocks before the onset of the winter season.

To make matters worse, the recent floods in Shanxi Province affected efforts to increase production; This resulted in an increased reliance on imported coal to fill the gap.

China usually imports only about 10% of its needs, but in September, it imported 32.9 million tons of coal, an increase of 76 percent compared to September last year.

The committee said it aims to produce at least 12 million tons per day.

As of October 18, daily production averaged the highest level this year at more than 11.6 million tons, up more than 1.2 million tons from late September.

 

Electricity Crisis

The shortage of coal, the main fuel for electricity generation, led to the introduction of electricity rationing in many areas; This disrupted production and put pressure on economic growth in the world’s second largest economy.

Jilin, Heilongjiang and Liaoning provinces were among the provinces hardest hit by the blackout last month.

In a bold move to reform the electricity sector, the government allowed coal-fired power plants to charge market-driven electricity prices to some customers starting October 15.

It is expected that setting prices driven by market forces will encourage small companies to increase production and cover the high prices of electricity.

At the same time, Beijing is trying to reduce its dependence on electricity from coal in favor of wind, solar and hydropower.

China’s National Energy Administration has urged power grid companies to increase their electricity purchases from renewable energy sources.

Analysts of the American financial services company “Citi” expected that coal-fired electricity generation in China would decrease by 86% from 4 billion and 658 million megawatt hours in 2020 to 653 million megawatt hours by 2060, and to be replaced by generation from clean power plants.

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Meanwhile, the China National Grid Corporation said, in a statement on Wednesday, that coal stocks at power plants in the northeast have jumped to 78% from a year ago as of Oct. 16.

 

Global Crisis

China is not alone in suffering from high electricity prices; The authorities from Beijing to Berlin are working to find solutions to contain the severity of the inflationary pressures that are putting the global recovery from the Corona epidemic “Covid-19” at stake.

On Tuesday, Singapore’s Energy Regulatory Authority said it would take extraordinary measures to protect the country’s energy system.

On Wednesday, the German regulator cut profits for the federal electricity and gas grid to help cut costs for consumers.

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