China’s imports of coal from the seaborne market surged again in October. Photo: Reuters/stringer

Chinese state planners called major mining companies to an urgent meeting on Thursday to hammer out a strategy to halt the persistent rise in coal prices.

The meeting came less than 24 hours after the second largest state-owned coal producer, ChinaCoal, announced that it was cutting its thermal coal price by 10 yuan (US$1.48) per tonne, citing an increase in production.

The National Development and Reform Commission said in a memorandum before the meeting that it aims to “prevent violent movements in coal prices and maintain an orderly market.”

This was in response to a recent dramatic surge in coal prices that has caused much concern for industry and the public.

“There is no basis for recent increases in coal prices in China to be sustained, and prices might even drop after sporadic factors fade away,” an NDRC official said on Monday.

“Once the sporadic factors fade away, a periodic coal supply glut and a price decline will be high-probability events,” the official told Xinhua.

Coal miners have been allegedly jacking up prices of coal used for heating and making steel, by taking advantage of the perfect storm in the market brought about by a rise in unfulfilled demand due to a supply shortage and exacerbated by a government policy to accelerate the removal of excess capacity.

There is no basis for recent increases in coal prices in China to be sustained

ChinaCoal expected overheated coal prices to cool after the government’s latest measures to speed up output increases to alleviate the shortage, while coal shipments and inventories at ports and users have been rising, the NDRC-operated China Reform Daily reported late on Wednesday.

Industry sources said the cut will only be imposed for physical settlement based on the Bohai-Rim Steam-Coal Price Index.

But they also said it was an indication that coal producers were falling into line with the NDRC, which is urging coal miners to sign long-term deals with utilities at a fixed price to ensure supplies and avoid a big hike in residential power costs.

Top coal miners including Shenhua have declined to reach an agreement with power generators to set the prices for their 2017 long-term supply contracts at prices below market levels.

China’s imports of coal from the seaborne market surged again in October, pushing international coal prices higher but is also raising questions as to how long the trend will last if domestic producers begin boosting output at the urging of the NDRC.

Coal price correction

The risk for a sharp coal price correction is clearly very substantial should the combination of domestic and imported supply began outstripping demand.

Seaborne coal imports were 20.03 million tonnes for October, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts. The imports for October are almost 3 million tonnes above the 17.06 million assessed for September.

This is the highest monthly total since news agency stated assessing the data in January 2015, and shows that China’s appetite for imports remains undiminished despite a spike in the prices of both thermal and coking coal.