China shows it’s serious about enforcing coal price controls

Coal mine in Hailar, Inner Mongolia, China. (Reference image by Herry Lawford, Wikimedia Commons)

China’s top planning agency has demonstrated its intent to keep coal prices in check, after a probe of deals struck by power plants found contracts that exceeded reasonable levels and sellers were told to refund excess payments.

The National Development and Reform Commission’s close supervision of the price caps it imposed at the start of May is one of a number of measures to help generators ensure adequate electricity supply. But the agency’s dragnet also underscores the difficulty in relying on price controls just as the economy begins to recover from the stringent virus restrictions of recent months and demand for China’s mainstay fuel rises.

Even if industrial activity remains subdued over the summer, the threat of extreme weather events — and additional air conditioning needs — is mounting. Heat waves have struck northern and central provinces, with some regions experiencing average temperatures of 40 degrees Celsius (104 Fahrenheit) for days.

Beijing has pledged to prevent a repeat of the surge in prices that crippled industry last year and has demanded that miners raise production to record levels. But a shortage of higher grade coal has persisted as imports have shrunk, allowing some traders to charge more in contravention of the price caps.

Thermal coal traded on a spot basis at the transport hub of Qinhuangdao rallied 14% from a month ago to 1,336 yuan ($200) a ton on Friday, according to the China Electricity Council’s weekly report. That was a clear breach of the 1,155 yuan a ton set by the NDRC last month.

“Previously those who dared to sell coal at high prices thought the government was only paying lip service,” consultancy Fengkuang Coal Logistics said in a note, citing the NDRC’s latest moves to weed out price violations. “The government is getting serious this time.”

Comments

Your email address will not be published.