China may adopt limited profit rates, set price limits and implement other interventional mechanisms such as price declaration system and price adjustment filing system to stabilize thermal coal prices, the National Development and Reform Commission said in a statement Oct. 19.
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NDRC held a meeting Oct. 19 with major coal companies, China Coal Industry Association and China Electricity Association to ensure energy supply ahead of the winter and spring season in an environment when coal prices and costs for downstream industries have risen.
The NDRC statement cited Article 30 of the Price Law which allows governments at the local, state or Central level to intervene through price caps, profit rate limits and price declaration systems when prices of essential goods and services rise significantly.
"The current price increase has completely deviated from the fundamentals of supply and demand, and the heating season is approaching, and the price is still showing a further irrational upward trend," the statement said.
The NDRC said that it will make use of the measures allowed under Price Law to intervene in coal prices. The statement said that the market supervision department will increase inspections and crack down on illegal activities such as spreading false information, price collusion, price bidding, hoarding, etc.
"There might be some correction but there won't be a steep drop in prices because China is short on coal [supply]. A steep drop is likely to be seen early next year and not now when it is winter," a Singapore-based trader said.
Sources said that offers for Qinhuangdao 5,500 kcal/kg NAR coal were heard around Yuan 2,250/mt FOB [$352/mt] Oct. 20 against Yuan 2,300/mt FOB [$359.87/mt] heard Oct. 19.
Traders said that such market interventions may exacerbate the problem as sellers resort to measures to sidestep the price controls.
In September, China started rationing power due to the shortage of coal and to meet emission requirements, sources said.
Chinese demand for seaborne coal has also resulted in a surge in Indonesian coal prices, sources said.
The 5,000 kcal/kg GAR Indonesian coal price was assessed at $205.05/mt FOB Oct. 19 against $66.5/mt Jan. 4.
An Indonesia-based producer said that the price of Indonesian coal would only correct if Chinese buyers stopped buying for at least two-three weeks.
"Will the production increase in China and by how much is the main thing to look at, otherwise it is difficult for the market to correct," an Indonesia-based producer said.