China’s coal-price indices stop revealing surging prices as demand soars and inventories ‘fall below warning line’

Sidney Leng
·6-min read

All four of China’s major coal-price indices have stopped being updated after a concurrence of factors sent the price of coal surging in recent weeks – signalling that the government has stepped in to cool the overheated coal market.

The factors said to be responsible for the soaring prices include China’s booming post-coronavirus industrial recovery, the annual sharp uptick in demand for coal to provide heat during the cold winter months, and an ongoing crackdown on illegal mines. Other factors at play include problems arising as local governments implement rules designed to curb pollution, and Beijing’s restrictions placed on coal imports, according to analysts.

The rare pricing freeze-out makes it more difficult for traders and analysts to predict market prices, but some say the trend of high prices shows no sign of abating in the short term, while coal supplies continue to dwindle at an alarming rate.

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With coal prices having surged by more than 10 per cent in December, the China Electricity Council – a big industry group of China’s electricity producers – on Wednesday stopped updating the widely cited China Electricity Coal Index (CECI), citing “surging spot prices” and “chaotic pricing”, according to a public announcement.

The same day, the China Coal Transportation and Distribution Association (CCTD), another influential industry group, also halted publishing its Bohai Rim port area’s spot price for thermal coal – a measure of coal prices in northern Chinese ports – because of “volatile and abnormal price fluctuations in the market”, it said in a notice. It had also delayed updating the price earlier in the month, on December 3, because of soaring prices.

Before the December 30 data freeze, CECI’s spot price for 5,500 kcal/kg thermal coal rose to 751 yuan (US$115.50) per tonne, and CCTD’s spot price for 5,500 kcal/kg thermal coal price surged to 706 yuan per tonne. Both prices were record highs for 2020. The prices fluctuate depending on the source. The National Bureau of Statistics said the price of 5,500 kcal/kg Shanxi high-quality thermal coal rose to 699 yuan per tonne last month.

The pricing freeze-outs by those two major benchmark indices in China’s coal market followed the pricing suspensions of two daily and weekly price indices by other companies in early December.

“The coal market has been severely distorted by speculation in the spot and futures markets, threatening the supply and price control of thermal coal,” the China Electricity Council said in a statement after halting its index. “During this special period, the governments needs to further adopt special and comprehensive measures to increase coal supply and crack down on market speculation, to ensure the supply of thermal coal, stabilise prices, and guide the market to return to a reasonable range as soon as possible.”

It added that the coal supply still faces increasing pressure this winter, as it remains difficult for main production areas to boost output, while coal inventory in northern areas is dwindling, with a particular shortage of high-quality, low-sulfur coal.

“In the short term, coal prices will continue to stay strong,” Xu Wenhui, a CCTD coal analyst, said on Monday. “During the past week, there was widespread cooling across the country, and the daily consumption of coal in power plants further increased … Inventories at some power plants have already fallen below the warning line.”

We expect that the supply and demand of the domestic coal market will continue to be in a state of tension in the short term, and that coal prices will remain at a high level

Xu Wenhui, CCTD

He added that power plants are still looking to purchase coal, but the output from three major producing areas has been insufficient due to “a variety of factors”, including environmental protection measures, leading to weaker supply than demand.

“Restrictions on imported coal are also ongoing, and unlikely to be reversed any time soon,” Xu said. “We expect that the supply and demand of the domestic coal market will continue to be in a state of tension in the short term, and that coal prices will remain at a high level.”

China informally banned Australian coal last year amid souring ties between the two countries, but the move has added pressure in a country desperate for coal, according to commodities analysts. Beijing has said it intends to loosen some restrictions over imported coal, but coal imports currently account for less than 10 per cent of China’s total supply, according to official figures. Other major foreign sources of coal include Indonesia, Russia, the Philippines and Mongolia.

Last month, China suffered its worst power blackouts in a decade, and analysts pointed fingers at the resurgence of manufacturing, the coal shortage and China’s central economic planning. Some power plants have said recently that they had only enough coal left to operate for matter of days or a couple of weeks.

In Anyang, a city of more than 5 million people in central China’s Henan province, two major thermal power plants had enough coal to last less than 10 days, which was below the minimum requirement of 15 days, according to a government report published last week.

The Anyang government said the main reasons for the shortage included low output from Shanxi province, the main supplier for the city’s coal, after several coal mines stopped production, in addition to logistical problems involving transport. Henan’s provincial government has required that natural-gas vehicles – meeting the latest emission standards – be used to transport coal, but fewer than half of the available vehicles are natural-gas powered.

On Friday, China’s seven largest coal producers endorsed the stabilising of prices by speeding up the signing of medium- to long-term coal contracts in 2021 to curb volatile price fluctuations.

The nationwide coal shortage started to loom large in early November, when domestic coal-producing areas, including Inner Mongolia, Shaanxi and Shanxi provinces, said they had reduced supplies amid the government’s ongoing crackdown on illegal sales of coal.

In the first 11 months of last year, coal output from Inner Mongolia, China’s largest coal-producing province, dropped 9 per cent from a year earlier to 900 million tonnes. After Beijing intervened in December to ask three coal-rich provinces to boost output, daily output in Inner Mongolia rose 16 per cent from the average production level seen during the year’s first three quarters, according to state media.

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