Chinese coal plunges after more price controls imposed on miners

China will limit the price of coal in its three biggest mining regions as it adds yet another layer of controls to stop the market from overheating.

The “reasonable range” for benchmark thermal coal at the mine head in Shanxi province has been set at 370 to 570 yuan a ton, the National Development & Reform Commission said in a release on Friday. For mines in Shaanxi province, the range is 320-520 yuan a ton, and for eastern Inner Mongolia, it’s 260-460 yuan.

The new pricing rules will take effect May 1. The NDRC also barred local governments from interfering in coal and power prices that are trading within prescribed limits, and from giving preferential electricity rates to energy-intensive industries.

The benchmark futures contract in Zhengzhou plunged after the price ranges were announced, extending losses to drop 8.5% to 741.8 yuan a ton.

Chinese miners also slumped on the news, with China Shenhua Energy Co. slipping as much as 3.5% and China Coal Energy Co. down 3.8% in Hong Kong. Yankuang Energy Group Co. lost as much as 5.9%, even as its Australian subsidiary gained as much as 7.7% due to a surge in seaborne coal prices.

The price limits for individual provinces are the latest in a raft of controls imposed by the government this year. Earlier this month, the NDRC capped nationwide prices at the mine head at 700 yuan a ton, according to the China Coal Transport and Distribution Association, while prices at ports were limited to 900 yuan a ton.

On Thursday, the NDRC set a reasonable range of 570-770 yuan a ton for medium and long-term coal deals at the port of Qinhuangdao, and said it will intervene if prices rise above that.

Coal has returned to the top of the policy agenda after President Xi Jinping said last month that China can’t allow its climate targets to undermine the economy. The authorities have barraged the market in recent weeks with rhetoric and other measures to keep prices in check, as the government steps up efforts to avoid a repeat of the punishing shortages that raised costs and weakened the economy last year. 

Much of China’s concern over the price of its mainstay fuel revolves around producer inflation, which hit eye-popping levels last year after the power crisis ravaged industry. Raw materials markets, especially iron ore, steel and other metals, and steelmaking coal, are poised to benefit further from the government’s plans to stimulate the economy in the first half via enhanced infrastructure spending. Set against that, the end of winter should sap demand for coal used in heating.

In any case, China has put itself in a much better position to prevent another power crunch. Thermal coal futures are still trading at a historically high level, but one that pales besides the near-2,000 yuan a ton reached in October. Beijing’s largely successful response to the crisis in the fall included reforms that allow utilities to pass on higher costs to industrial users and a massive ramp-up in coal output that saw production surge to record levels.

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