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China’s state planner has set an immediate price target for thermal coal in its most direct intervention yet to cool the market for the key power generation fuel amid a severe energy crisis.
The price target was revealed during meetings on Tuesday and Wednesday between the National Development & Reform Commission (NDRC) and coal miners and distributors, as well as power companies.
China wants to set ex-mine prices for 5,500 kilocalorie thermal coal at 1,200 yuan ($187.56) per tonne well below the 1,450-1,900 yuan per tonne cited by traders Wednesday in the coal-producing regions of Inner Mongolia and Shanxi.
The 1,200 yuan level appears to be the first target the NDRC is reaching, before pushing them lower, perhaps by another 300 or 400 yuan. However, 1,200 yuan per tonne would still be above the break-even rate for power generators, which analysts have estimated at between 600 and 1,000 yuan depending on the region.
The most-traded thermal coal futures contract on the Zhengzhou Commodity Exchange fell 13 percent Thursday to 1,033.8 yuan ($161.47) per tonne. Coal futures tumbled 47.8 percent from a record 1,982 yuan on Oct. 19, dropping to their lowest level since Sept. 17. They are still up almost twice as much for the year.
Beijing will take unprecedented measures to alleviate the energy and coal crisis, although the risk of energy rationing may persist during the winter, while the price of coal may continue to fall from its current level.
Local authorities will be responsible for guiding the prices that coal traders and distributors charge to retail consumers and intervening if necessary.
The more aggressive price targets, which some traders have said would be difficult to achieve, are designed to last through this winter, but are awaiting a final nod from China’s State Council.
