Coking coal, coke and thermal coal futures in China's domestic futures market all fell by their daily limit, and thermal coal futures have fallen nearly 48% from their all-time high of $1,982 reached on Tuesday, Oct. 19. In addition to black commodity futures, energy chemicals and non-ferrous metals also fell sharply on Wednesday. The analysis pointed out that China's development and Reform Commission has "shot", continuing the high-pressure control situation of the past week. According to statistics, as of Wednesday, the National Development and Reform Commission has issued a total of 16 articles for 9 consecutive days, consolidating illegal coal storage sites, studying measures to intervene in coal prices, and carrying out special supervision of spot market prices.

On Wednesday evening, the National Development and Reform Commission issued a document saying that it and the General Administration of Market supervision formed four joint inspection teams to go to the main coal producing areas of Jinshaanxi-Mongolia and Qinhuangdao port and other major northern coal ports to carry out special inspections of coal spot market prices, and "severely crack down on illegal acts such as fabricating, spreading information about price increases, hoarding, price gouging, and price collusion." Promote the return of coal spot market prices to a reasonable range." In addition, the commission also announced that on the morning of the same day, the Commission convened a meeting of the China National Coal Industry Association and some key coal enterprises to study specific measures to intervene in coal prices.

Since September, due to the shortage of coal supply, resulting in insufficient power generation of power plants, triggering concerns about energy crisis, and many required factories to take power restrictions to stop production, including some places in the Northeast also limited residential electricity, which caused great concern in society! The surge in coal prices is also being managed by Chinese regulators. Affected by the above mentioned China's development and Reform Commission intensive release of coal speculation and other related articles, the above mentioned thermal coal futures main contract since October 19, the highest price of 1982 yuan/ton, fell to the current 1033.8 yuan/ton, a drop of up to 48%, almost "halved". The main coking coal and coke futures contracts have fallen 35 per cent and 30 per cent, respectively, from their highs on October 19 to the close of trading yesterday evening.

However, there have been media reports that Chinese regulators have suppressed the price of coal futures, and spot prices are still "high"... Reuters pointed out that a drop seems amazing, but in fact, it is far from the conditions needed to alleviate China's energy crisis. Although the price of the main thermal coal futures contract has fallen significantly, the front-month contract is still up 192% from the 2021 low of 446.6 yuan per ton on February 23, which means prices are still at extremely high levels. In addition, Reuters pointed out that the ZCE front-month contract will expire on January 10 next year, reflecting expectations for coal prices at that point in time, and contract holders can theoretically withdraw the underlying coal at that point in time.

A better measure of coal prices now is the range of spot prices given by different providers at a number of physical delivery ports in China. One indicator is the spot price at the Chinese port of Qinhuangdao, provided by Steelhome, a consultancy. Qinhuangdao coal prices are still up 266% from the year's low of 573 yuan hit on March 2, and have more than doubled from the previous winter peak of 1,038 yuan on Jan. 19. The market has long believed that 530 yuan to 580 yuan per ton is the most comfortable price range for the authorities, because such prices allow domestic coal miners and power companies to profit. The current price is almost four times that range.

This is why China's National Development and Reform Commission said that it has recently received reports that some coal and other energy advisory agencies do not use real transaction prices, abuse inquiry and quotation, release hearsay information and even fabricate and publish false price indexes, manipulate price indexes, etc., and will compile and publish all coal price indexes with national influence in accordance with regulations. Initiate price index behavior assessment and compliance review. Another verbal warning aimed at forcing market prices to cool down!

It is reported that the special meeting on the morning of the 27th further clarified the details of the thermal coal price limit. The scope of intervention includes thermal coal pit price and terminal sales price, and the intervention method is to implement the "benchmark price + floating range" price limit for thermal coal pit price, and the intervention method of thermal coal terminal sales price is determined independently by the provincial people's government. The specific price limit standard is the base price of thermal coal pit price formulated by the National Development and Reform Commission, which is 440 yuan per ton including tax, and the maximum floating range is 20%, that is, 528 yuan per ton. Coal production enterprises may, on the basis of the benchmark price, determine the specific pit price within the allowable floating range.

Market participants said that the price limit of 528 yuan per ton is the opinion of the price department, but it needs to be reported to The State Council before it can be implemented. The two have different legal effects. The operation bureau is similar to the initiative, the enterprise voluntary; Price regulations are similar to regulations and must be enforced. However, the opinion of the price department depends on whether it can be approved, if it is not approved, it is of little significance. According to the opinions of the price department, the price of thermal coal to the port is about 800 yuan per ton.

For spot prices to fall sustainably, coal supplies must eventually reach levels sufficient to meet demand, a process that could take months. After effectively curbing output through security checks earlier this year, China is pushing miners to ramp up production, but it is a slow process. China produced 334.01m tonnes of coal in September, down from 335.24m tonnes in August (although up slightly on a daily tonnage basis) and well below the record 351.89m tonnes in December.