BEIJING, (Reuters) – Trade in China’s thermal coal futures is almost dead after Beijing increased its control over coal prices in an effort to curb the soaring cost of raw materials.

Zhengzhou Commodity Exchange (ZCE), the flagship product, has witnessed as many as one million lots change hands each day. However, it only recorded a Monday turnover of 27 lots.

It was down 99.9% compared to a previous year and it is the lowest daily volume ever since ZCE data were first released in 2015.

After Beijing intervened last September in the largest coal-consuming country to stop runaway prices, liquidity began to dry up.

It introduced reference price ranges for spot and long-term thermal coal trades. The state planner also warns that it will penalize any price-pushing behavior in the futures or physical markets.

This has had a significant impact on trading volume as well as open interest in coal futures. These are two important indicators of derivative activity.

The September most-traded contract had 479 lots of open interest, which is equivalent to 47.900 tonnes of coal. This was down from the April peak of 294,273 lots.

China’s thermal coal futures https://fingfx.thomsonreuters.com/gfx/ce/jnpwezggkpw/Zhengzhou%20coal.jpg

A Zhengzhou official said that “the priority of China’s futures markets right now is support Beijing’s efforts at stabilizing prices through curbing market activity.”

But, liquidity is essential for the markets to perform their price discovery and hedge functions.

Since 2022, at least six modifications have been made to margin requirements and transaction fees by Zhengzhou Commodity Exchange.

ZCE refused to comment.

A Beijing-based trader in coal said that trading futures is pointless as the prices have been set by government officials and nobody dares cross the line regardless of the real supply and demand.

Since last October, Beijing also questioned 15 providers of coal price indexes. This has forced some highly respected institutes to cease publishing spot coal price assessments daily.

Zhengzhou’s thermal coal prices were at 849yuan per tonne ($125.07), on Monday. Benchmark Newcastle thermal coke was at $392.85 per ton.