China

China NDRC studying mechanism to stabilise coal prices over long-run

2 minute read

China Energy coal-fired power plant is pictured in Shenyang, Liaoning province, China September 29, 2021. REUTERS/Tingshu Wang

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  • NDRC looking into costs and profitability of coal sector
  • NDRC study to stabilise prices within reasonable range
  • China thermal coal prices fall 7%, 5th straight days of decline

SINGAPORE, Oct 26 (Reuters) - China's top economic planner said on Tuesday it was studying a mechanism to stabilise coal prices over the long run, in its latest move to cool the red-hot market.

The National Development and Reform Commission (NDRC) said it was looking into the costs and profitability of the coal sector in an effort to work out a mechanism to guide prices to move within a reasonable range.

The NDRC was also considering including coal in a "prohibiting exorbitant profits" category.

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The new mechanism would be based on a benchmark price plus a floating range, after taking into account costs, reasonable margins and market changes, it said.

"The mechanism shall be linked to the marketisation of the thermal power sector ... and those who do not strictly follow the mechanism will be severely punished," the commission said.

While China's thermal coal futures have come off record highs since last week, after Beijing pledged to intervene, they are still up more than 130% year-to-date.

The contract closed down 7% at 1,237 yuan per tonne on Tuesday, tracking five straight days of declines.

The government has indicated that 500-570 yuan per tonne is a reasonable range for long-term thermal coal contracts.

On Monday, the NDRC said it would investigate index providers in a bid to tame runaway prices. read more

A shortage of coal, China's main fuel for power generation, has led to electricity rationing for industry in many regions, weighing on factory gate inflation in the world's second-biggest economy. read more

China is the world's biggest producer and consumer of coal, and has been increasing output to meet demand but the supply situation has seen slow improvement, analysts have said.

"There has been a lack of immediate curtailments of industrial power use and slow improvement in coal supply," Citi analysts said in a note late on Monday.

"This materially increases the possibility of a 20-30% nationwide industrial power rationing in late November and December, when our anticipated large industrial output cuts across upstream and downstream sectors should materialize."

The analysts also said that they expected China's daily coal output would continue to fall short of the NDRC's targeted 12 million tonnes until December "leaving China in a coal and power deficit despite somewhat stronger thermal coal imports than we earlier expected". read more

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Reporting by Chen Aizhu in Singapore and Shivani Singh in Beijing; Editing by Himani Sarkar, Robert Birsel

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