China weighs coal market intervention to end stunning rally

China and other major countries are clamouring for coal and natural gas to keep the lights on. PHOTO: NYTIMES

SINGAPORE (BLOOMBERG) - China's top economic planner is studying ways to intervene in the coal market as the government tries to rein in soaring prices and curtail shortfalls that are threatening energy security and economic growth.

The fossil fuel provides more than half the country's energy.

The National Development and Reform Commission (NDRC) said it is evaluating measures to intervene in prices and has "zero tolerance" for those spreading false information or involved in collusion in the market. The agency added that China planned to raise its coal output to 12 million tonnes a day and give the fuel priority for deliveries through ports and over railroads.

"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 NDRC will "study specific measures to intervene in coal prices and promote the return of coal prices to a reasonable range".

China thermal coal futures fell by the limit in overnight trading, ending a surge that has seen the fuel more than double since the beginning of September amid blackouts and power restrictions.

China has been seeking for months to curtail the rally in coal, with little success. The government has urged miners to boost output, considered price caps, released portions of its strategic reserves and ordered state-owned energy companies to secure winter supplies at all costs. Daily production averaged 11.1 million tonnes in September, up from 10.1 million tonnes in July.

China has been stung by the global energy crisis. Limited supplies of fuel have forced the country to cut power to large industrial users to ensure there will be enough available for home heating through the winter. China and other major countries are clamouring for coal and natural gas to keep the lights on, just weeks before a key United Nations climate conference kicks off in Glasgow where leaders will discuss ways to curb emissions from fossil fuels.

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 on Tuesday (Oct 19).

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 on Tuesday afternoon to ask state-owned mines there to immediately lower prices by 100 yuan (S$21) a tonne, with harsh measures being threatened for companies that do not 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 1,800 yuan a ton, the Economic Daily reported, citing the country's top economic planner.

The most active thermal coal contract on the Zhengzhou Commodity Exchange fell as much as 4.4 per cent in overnight trading after closing at a record 1,835.6 yuan a tonne on Tuesday.

Still, favourable supply and demand dynamics mean there is a chance that coal's gains could continue, Mr Dennis Ip, an analyst with Daiwa Capital Markets, said in a research note on Tuesday.

Coal price hikes are likely to be seen as the winter heating season approaches, he said.

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