As winter approaches, the country’s leading economic planner said this week he would use “whatever means” to push back record coal prices, including by using national laws that allow the government to limit the profits and prices of key products. that all coal mines operate at full capacity even during the holidays, issued approvals for new mines, and ordered major coal production bases in northern and northwestern China to lower prices by 100 yuan per ton from Tuesday.
Coal futures on Chinese stock exchanges fell to their lower trading limits on Tuesday and Wednesday after the announcement.
China’s cancellation of restrictions on mining and coal imports could help stem the surge in global fuel prices, driven by factors such as a post-pandemic economic recovery, bottlenecks in transport and low stocks. Beijing’s efforts to meet stricter environmental targets, stepped up this summer, have exacerbated the coal shortage, which the country consumes half of the world’s supply.
Beijing’s faltering policies precede a world climate summit next month – Chinese officials have not confirmed whether President Xi Jinping will attend – and in part reflect the difficulty in balancing economic growth imperatives with climate goals . Xi said in April at a separate climate summit that China plans to limit the increase in coal consumption until 2025 and then start cutting fuel consumption. Last year, he said China’s carbon emissions will start to decline by 2030 and the country will achieve carbon neutrality by 2060.
In mid-August, the Chinese state planner said 20 provinces had failed to meet a list of climate-related targets and ordered drastic cuts in coal-fired power generation.
The cuts, however, have undermined factory output and are now weighing on China’s economic growth, posing another challenge for Xi.
Electricity restrictions became widespread in September, with at least 18 provinces taking measures to reduce electricity consumption, including shutting down some factory production and putting out traffic lights. China currently has coal stocks of some 88 million metric tonnes, enough to last 16 days at key power plants, the government said.
The National Development and Reform Commission said on Tuesday that coal prices had “deviated completely from the fundamentals of supply and demand” and were still on an “irrational” uptrend.
The commission convened on Tuesday major coal producers and industry associations to discuss ways to deter prices. The commission also sent a team to the Zhengzhou Commodity Exchange on Tuesday afternoon to inspect coal price movements since the start of the year. Beijing often targets unspecified speculators when it wants to contain soaring commodity prices.
“We will severely crack down on illegal activities such as spreading false information, colluding on prices, bidding and hoarding, in order to maintain order in the market,” the commission said. “We will respect ‘zero tolerance’.
The state planner has set a daily coal production target of 12 million tonnes; the rate peaked for the year at 11.6 million tonnes on Monday, up from around 10.4 million at the end of September.
At Chinese ports, importers were able to unload Australian coal, signaling the potential end of a year-long trade ban, although the cargoes have yet to clear customs, analysts and shipping brokers said. China began blocking coal shipments from Australia last fall as bilateral relations deteriorated after Canberra called for an independent investigation into the origins of Covid-19.
“We estimate that around five million tonnes of coking coal and three million tonnes of Australian thermal coal stored in Chinese ports could be unloaded in the Chinese domestic market,” said Rory Simington, senior analyst at the consulting firm. in energy Wood Mackenzie.
Most of that coal has been offloaded from ships in port stocks and is awaiting customs clearance, analysts and shippers said. Customs officials did not respond to a call for comment.
However, import volumes are largely insufficient to lower prices on the Chinese thermal coal market. Coking coal, used for steelmaking and not for power generation, could have more of an impact, Mr Simington said. China imported some 33 million tonnes of coal last month.
Coal and coal futures on China’s commodities exchanges in Zhengzhou and Dalian collapsed after the commission’s latest announcement. The most actively traded thermal coal futures fell 8% to around $ 275 per metric tonne on Wednesday, still three times higher than the year-low in March.
Still, China’s benchmark maritime thermal coal Qinhuangdao traded at $ 405 per metric ton on Wednesday, up 2% from Tuesday and nearly five times higher than the year’s low in March.
High coal prices, in part created by the Australian coal ban as well as the then booming Chinese economy, are putting Chinese regulators in a bind. As Beijing tries to wean itself off coal, cuts fuel the coal rally, which has cost Chinese power plants the equivalent of 1.1 to 1.2 cents US for every kilowatt hour produced, or millions of yuan per day for each plant operating at full capacity, according to estimates by Chinese analysts.
Analysts expect Beijing’s latest measures to gradually boost coal production, which could help alleviate shortages to some extent, although larger-scale electricity shortages may recur.
“We generally expect these disruptions to subside over the next few months, as we expect policymakers to focus on growth and call for the pursuit of climate goals within a more measured time frame.” , said Tommy Wu, chief economist at Oxford Economics.
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