How China Plans to Regulate the Price of Coal

Thermal coal accounts for roughly 60% of the world’s second-largest economy’s electricity needs. China is trying to regulate the price of coal ahead of winter. Last month, Chinese regulators nearly halved domestic prices for thermal coal.

 Nonetheless, the country still faces the daunting task of keeping the fuel cheap and abundant through winter. The price of the primary source of power for the country more than tripled in the 12 months to mid-October after years to reduce overproduction ran into booming post-pandemic industrial demand for power.

 The country’s government worked hard to boost production. China also introduced various measures to improve the situation. The government’s actions also affected the global coal market, with prices in major coal exporters Indonesia and Australia falling in recent days and have left market participants wary of further regulatory meddling.

Coal and the country’s government

 The demand for coal will increase in winter. So, Beijing is likely to face pressure to manage the country’s power-generating fuel supplies and costs.

 Authorities in China understand the severity of the problem. They held dozens of meetings with producers, utilities, and others, producing a flurry of market missives and warnings. Without exaggeration, they are working nonstop to address important issues. National and local government bodies issued 71 power-related documents in October. 

Authorities asked miners to change course after years to reduce overcapacity by shutting inefficient or environmentally unfriendly coal deposits. Thanks to Beijing’s actions, daily coal output reached a record high of 12.05 million tons on November 10. 

Still, analysts are closely monitoring China’s coal stockpiles for signs of market tightness. Total coal inventories held at key ports across the country were at 52.4 million tons in October. Notably, this is up 1.8% from September but roughly 20% below the October average from 2017 to 2020. 

Data provided by Caixin Data Technology Co. is also quite interesting. Inventories held by key power plants as of the end of the last month were roughly 38% below the average for that month from 2017 to 2020. 

Let’s not forget about the winter. The upcoming winter also has the potential to disrupt the coal industry. For instance, the winter may strain supplies, especially in open-pit mines which can be affected by heavy snow. On Sunday, China’s State Grid Corp warned there would be a tight balance between power supply and demand until spring.