China coal futures slump as gov't signals intervention to ease power crisis

China is pushing miners to ramp up coal production and is increasing imports so that power stations can rebuild stockpiles before the winter heating season, but analysts say shortages are likely to persist for at least another few months

  
Smoke is seen from a cooling tower of a China Energy ultra-low emission coal-fired power plant during a media tour, in Sanhe, Hebei province, China July 18, 2019. Image used for illustrative purpose.

Smoke is seen from a cooling tower of a China Energy ultra-low emission coal-fired power plant during a media tour, in Sanhe, Hebei province, China July 18, 2019. Image used for illustrative purpose.

REUTERS/Shivani Singh

BEIJING - China's thermal coal futures fell the maximum permitted 11% on Thursday, extending losses since Tuesday when Beijing signalled it might intervene to cool surging prices that have led to a power crunch across much of the country.

China is pushing miners to ramp up coal production and is increasing imports so that power stations can rebuild stockpiles before the winter heating season, but analysts say shortages are likely to persist for at least another few months.

The state planner, the National Development and Reform Commission (NDRC), said on Tuesday it was studying ways of intervening to lower coal prices and would take all necessary steps to bring them into a reasonable range.

The country's most-active thermal coal futures tumbled the limit-down amount at the open on Wednesday, to 1,587.4 yuan ($248.07) per tonne. They closed down almost 20% from the record high of 1,982 yuan per tonne touched on Tuesday, but are still up about three-fold for the year-to-date.

Coking coal and coke futures on Dalian Commodity exchange also fell by their maximum permitted limits of 12%. Coking coal closed at 3,109 yuan a tonne and coke futures plunged to 3,663.5 yuan per tonne. 

Despite recent swings in coal prices, higher energy, labour and other costs are now expected to persist and be passed on to end-consumers, economists and analysts have said. 

Chinese law allows the State Council, the country's cabinet, and regional governments to limit profit rates and set price limits when prices for important goods or services rise sharply, the NDRC said. It vowed to crack down on any irregularities and maintain market order. 

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

China is the world's biggest producer and consumer of coal, and has been increasing output to meet demand. 

The NDRC had said it would ensure coal mines operate at full capacity and aim to raise output to at least 12 million tonnes per day.

It put the daily production rate at a 2021 high of over 11.6 million tonnes as of Oct. 18, up more than 1.2 million tonnes from late September after an all-out effort to boost supply that has included approvals for new coal mines. 

Some major coal miners have vowed to cap prices, and China's energy administration has urged power grid firms to maximise purchases of electricity from renewable sources. 

China Energy Group, the country's top coal miner and largest power producer, said on Thursday that its coal output from Oct, 1 to 20 increased by about 2.26 million tonnes, or 7.5% compared with same period last year.

The state-owned mining and energy company added that total power generation in the same period was 54.78 billion kilowatt hours (kWh), up 15% year-on-year, of which thermal power generation rose by 6.36 billion kWh, up 17.2%.

The country's securities regulator has asked futures exchanges to raise fees, restrict trading quotas and crack down on speculation in response to high coal prices. 

The government took its boldest step in a decades of power sectors reform by allowing coal-fired power plants to pass on the high costs of generation to some end-users via market-driven electricity prices from Oct 15. 

"The tariff rise was inadequate to make most coal-fired independent power producers profitable", Citi analysts said in a note to clients on Thursday.

China is not the only country trying to cool hot energy prices. Authorities from Beijing to Berlin are taking steps to try to deal with them to contain rising inflationary pressures that are putting at risk a global recovery from the COVID-19 pandemic. 

The heat in energy markets underlines the scale of the task facing world leaders who are under pressure to map out plans to wean their economies off fossil fuels at the COP26 U.N. summit climate talks that starts on Oct. 31. 

Beijing has been trying to reduce its reliance on polluting coal power in favour of cleaner wind, solar and hydro.

The Citi analysts expected China's coal-fired power generation would drop 86% from 4,658 million megawatt hour (MWh) in 2020 to 653 million MWh in 2060 as cleaner energy plants come online.

China's State Grid said in a statement on Wednesday that coal stocks at power plants in the northeast had climbed to 78% of last year's level as of Oct 16, but did not provide outright volumes.

The three northeastern provinces of Jilin, Heilongjiang and Liaoning - were among the worst hit by the power shortages last month.

Several regions in northern China, including Inner Mongolia and Gansu, have already started winter heating, which is mainly fuelled by coal, to cope with the colder-than-normal weather.

In late October, temperatures in central and eastern regions are expected to be "significantly lower than normal," the National Meteorological Center forecast on Thursday, adding that temperatures in some western and southern regions of the country will fall by 4 to 10 degree Celsius within the next day.

($1 = 6.3989 Chinese yuan renminbi)

(Reporting by Shivani Singh, Muyu Xu and Beijing newsroom; Editing by Richard Pullin, Kenneth Maxwell and Kim Coghill) ((ShivaniSingh2@thomsonreuters.com; +86 10 5669 2115;))


More From Energy