Shivani Singh and MuyuXu

BEIJING (Reuters). -China’s thermo coal futures dropped the maximum permissible 11% on Thursday. These losses extend from Tuesday when Beijing suggested it could intervene in order to lower surging prices, which has led to a power crisis across most of China.

China has been pushing miners to increase coal production. It is also increasing imports to ensure that power stations have enough stockpiles to re-build before winter heating season. Analysts however believe shortages will persist at least for a few more months.

On Tuesday, the National Development and Reform Commission (NDRC), a state planner, stated that it is studying how to intervene to lower coal prices and will take every step to get them within a acceptable range.

On Wednesday, China’s active thermal coal futures plunged to 1,587.4yuan ($248.07) a tonne. The prices fell almost 20% off Tuesday’s record of 1,982 Yuan per Tone, however they are up more than three times for the entire year.

The maximum allowed limits for coke and coking coal on the Dalian Commodity Exchange also dropped to 12%. Closed at 3,109 yuan/tonne for Coking coal, and plunged to 3,663.5yuan/tonne for Coke Futures.

Analysts and economists agree that despite recent price swings in coal, the higher costs of energy and labour will continue to be an issue and should be passed onto end-consumers.

According to the NDRC, Chinese law gives the State Council and other government bodies the ability to control profit rates, as well as set price limits, when important goods or services are priced high. It pledged to fight against any market irregularities and keep the markets order.

China is the second-largest economy in terms of its coal reserves. This has impacted growth.

China is the biggest coal producer and buyer in the world.

The NDRC said that they would make sure coal mines are operating at maximum capacity, and aim to increase production to 12 million tonnes per hour.

After an extensive effort to increase supply, which included the approval of new coal mines and other measures that include boosting production, it put the daily production rate at over 11.6million tonnes in 2021.

Major coal miner have pledged to limit prices and China’s energy administration has encouraged power grid companies to maximize their purchases from electricity generated by renewable sources.

China Energy Group (the country’s largest and most important coal miner) announced Thursday that the company had seen a 7.5% increase in its coal production from October 1 through 20.

According to the state-owned energy and mining company, total power generation for that period reached 54.78 Billion Kilowatt Hours (kWh). This is an increase of 15% over last year. Thermal power generation grew by 6.36 Billion kWh (17.2%).

In response to rising coal prices, the country’s securities regulator asked that futures exchanges raise their fees and reduce trading quotas.

In a decade of reforming power sector power, the government made its most bold move by allowing coal-fired power stations to transfer high-generation costs to end-users through market-driven electricity prices starting Oct 15.

Citi analysts stated in a note sent to clients that Thursday’s tariff increase was not sufficient to turn most independent coal power producers into profitable businesses.

China isn’t the only one trying to lower hot energy prices. They are being addressed by authorities from Beijing to Berlin to limit rising inflationary tensions, which could threaten a world recovery from the COVID-19 epidemic.

It is evident that the heat in energy markets highlights how difficult it is for world leaders to plan to eliminate fossil fuels from their economies at the COP26 U.N. summit on climate negotiations, which starts Oct. 31.

Beijing has tried to lessen its dependence on dirty coal, in favor of cleaner wind, solar and hydraulic power.

Citi analysts forecast that China’s coal fired power generation will drop by 86% to 4,658 megawatt hour (MWh), 2020 from 653 million, and then go down to 653million MWh (2060) as more clean energy facilities come online.

China’s State Grid stated Wednesday in a statement that the coal stock at northeastern power plants had increased to 78% from last year as of October 16, but didn’t provide exact volumes.

Three northeastern provinces – Heilongjiang, Jilin and Liaoning — were the hardest hit by last month’s power outages.

To cope with the harsher than normal weather, several regions of northern China including Inner Mongolia, Gansu and Gansu have begun winter heating. This is mainly powered by coal.

Temperatures in eastern and central parts of October are likely to drop “significantly” from normal, according to the National Meteorological Center’s Thursday forecast. They also predicted that some regions in western and southern areas will see temperatures fall 4-10 degrees Celsius over the course of the next day.

($1 = 6.3989 renminbi)