China is considering setting new limits on volatility in coal prices, to help reduce the country’s prices energy crisisHowever, there will be threats to curtail profits in the sector.
The National Development and Reform Commission said in a statement on Tuesday that the apex economic planning agency is studying plans for a “value creation mechanism to guide the long-term stability of coal prices in a reasonable range”. Officials are already working to estimate average production costs and help determine benchmark rates.
Prices for physical coal cargo and futures contracts rose since early last month as China began to experience power shortages, affecting key industries and putting growth at risk. Actions by authorities to curb those gains and help miners increase supply have had an effect, with futures falling by nearly a third in the past week.
The most active thermal coal contract on the Zhengzhou Commodity Exchange fell 7.6% to 1,207 yuan ($189) a tonne on Tuesday, its lowest intraday price in nearly a month. By 12:30 pm local time, coal trading was down 3.4%.
Analysts at Morgan Stanley, including Sarah Chan, said in a Tuesday note that the policy changes risked a rise in coal prices. Analysts said the supply-demand balance remains tight, but coal prices have peaked as a result of government intervention and efforts to increase production.
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