By MuyuXu and Shivani S

BEIJING, (Reuters) – Chinese regulators nearly halved the soaring prices of thermal coal last month, which is the primary source of power for China’s No. 2 economy, in just 10 days. 2, economy.

Beijing’s series of interventions has highlighted Beijing’s regulatory power, although the country is still faced with the formidable task of keeping winter fuel prices low and available.

After years of efforts to reduce overproduction, the price of coal, which is roughly 60% of China’s electricity requirements, more than tripled between mid-October and mid-October. This was despite a booming industrial demand after the pandemic.

Soaring electricity prices caused producers to reduce output. This sparked power rationing, which slowed economic growth. Beijing raced for production, and introduced measures that included price targets, a crackdown against hoarding, and probes into data suppliers.

In the 10 days following hitting a record on Oct. 19, thermal coal futures traded on Zhengzhou Commodity Exchange plummeted and fell by 56%, respectively.

The spot price of physical coal at Guangzhou’s southern port also dropped sharply, and is now nearly 44% below their October peak. Both are currently up over 60%, however.

According to analysts Rystad Energie, Steve Hulton and Fabian Ronningen said “No other country could’ve achieved the same result due to its scale and timeframe.”

“It really shows the power and influence of Chinese authorities on the coal market in China, as well as the economy overall.”

A raft of regulatory interventions have impacted the global coal market. In recent days, prices for major coal exporters Australia, Indonesia and other countries fell, making market participants nervous about further intervention.

Analysts and traders believe that Beijing will be under pressure to control the country’s fuel-generation costs and supply until 2022 as the colder weather in China increases heating demand and creates more need for coal.

STEADY DECLINE

Beijing hosted a series of meetings to reverse months-long increases in coal prices.

A summary distributed among traders shows that 32 local and national government entities issued power related documents in October. It chills trading activity in futures coal, which has seen open interest for coal, and volume slumping on Zhengzhou’s exchange.

Kevin Xue from Commonwealth Bank, senior Asia economist, stated “Never resist the regulators”.

After years of trying to reduce overcapacity, miners were asked to abandon their efforts to close inefficient and low-yielding coal deposits.

Beijing’s efforts to persuade the Chinese have been successful so far. The country’s national planner stated that daily coal production reached a new record of 12.05 millions tonnes on November 10.

Traders at a National Development and Reform Commission meeting (NDRC), Nov. 3, said that the National Economic Planning Commission’s message was to keep coal prices from falling too quickly and far too soon.

The NDRC stated that “with more coal capacity being released and increased production… coal prices will continue to fall steadily.”

LESS THAN 1%

The recent swell in fresh coal mine supply and a regulatory change allowing power producers to pass on higher prices https://www.reuters.com/business/energy/what-does-chinas-power-policy-shift-mean-metal-makers-other-energy-hogs-2021-10-13 has helped raise electricity output for households and reduce the number of power curbs in effect since September.

However, analysts closely monitor China’s coal stockpiles to see if there are signs of market tightness.

According to China Coal Transportation and Distribution Association, total coal inventories at China’s key ports – which is a measure that reflects domestic production and imports- stood at 52.4 millions tonnes in October. Although this figure is 1.8% higher than in September, it’s still roughly 20% less than the average October 2017-2025 coal inventory.

Caixin data technology co. found that inventory held by major power plants was 38% less than the monthly average from 2017-2020.

This winter could also cause problems for supplies in open-pit mines, which are susceptible to heavy snow. It raises questions about sustainability given the recent increase in output.

China’s State Grid Corp warned Sunday that the balance between demand and supply will remain tight until Spring, with heating demand set to increase as winter draws in.

Rystad Energy analyst expects prices to decline in the near to medium-term, however they warn that there is a risk of supply disruptions and extreme weather events causing prices to rise again.

The authors stated that “we expect high levels of price volatility.”

It is evident that Beijing is committed to steering the market,” Yu Aiqun (a researcher at U.S.-based Global Energy Monitor thought tank) said.

“The government has the ability to get in as deeply as it likes,” she stated.