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Super Hot Coal Markets Brace for Regulators' Reaction



July 13, 2017 - Mining and electric utility executives in China are preparing for a possible government intervention into coal markets after coal prices hit the 600 yuan ($88.25) a ton threshold that the state planner said would trigger steps to cool prices.


A prolonged heatwave across northern China, hydropower cuts in the south, a fresh campaign on mine safety and imports curbs have triggered a weeks-long rally in the world’s top buyer of the fuel.


On Friday, the most-active futures prices hit 598.6 yuan ($88.04) per ton. That’s up 18 percent since mid-May. In January, the National Development and Reform Commission (NDRC) said in a document that it is comfortable with a price of 470 yuan to 570 yuan per ton and will use measures to cool the market if it rises above 600 yuan.


But spot physical prices offered by major producers, such as Shenhua, ChinaCoal and Shandong Energy, are already at 600 yuan, sources with the three companies said, driven by strong demand.


“Policymakers are trying to curb the rally in prices. But there is such a big demand for coal now that (Shenhua)’s spot prices have reached 600 yuan,” said a source from Shenhua.


It is not clear what level of intervention the government would consider. The NDRC may try to force miners to cut prices or set limits on the amount of inventory utilities and trading companies can hold to prevent them from buying extra volumes that could push prices much higher or create shortages, according to four mining company executives and one power firm executive.


At least three of the top four mining firms, ChinaCoal, Shenhua and Yitai, have halted spot sales to meet increasing demand from long-term contracts with clients, sources with the three companies said.


The NDRC, Shenhua, ChinaCoal, Shandong Energy and Yitai did not respond to requests for comments.


Major utilities buy on long-term contracts at about 570 yuan per ton, and the smaller plants and traders are exposed to the cash market.


Analysts say utilities have about 20 days of inventory on hand, which is enough to see them through the busy summer months.


Still, the price gains have tested the government’s efforts to boost supplies, quell concerns about tightening availability during peak demand season and cool the red hot market.


In a June 30 document, the NDRC asked miners to boost output as part of a series of steps to ensure power supplies over the summer.