Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

China coal futures slump as govt announces 'clean-up' of illegal storage sites

CommoditiesOct 27, 2021 10:36AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A coal-burning power plant can be seen in the city of Baotou, in China's Inner Mongolia Autonomous Region, October 31, 2010. REUTERS/David Gray

BEIJING (Reuters) -China's thermal coal futures slumped to their lowest in more than a month on Wednesday in their sixth consecutive day of declines, after the country's state planner said it would conduct "clean up and rectification" work on coal storage sites.

The planner, the National Development and Reform Commission (NDRC), also said it had met with key coal producers on Wednesday to further discuss intervention in prices. The recent sell-off in thermal coal was triggered by an NDRC statement last week saying it was studying intervention.

The most-traded thermal coal futures contract on the Zhengzhou Commodity Exchange fell 10%, hitting its daily trading limit in Wednesday's day session.

In night trading, which counts as part of Thursday's trading day, the contract slumped another 13% to 1,033.8 yuan, the lowest since Sept. 17 and bringing the total decline from the record high of 1,892 yuan on Oct. 19 up to 47.8%.

China, which relies on coal-fired power for about 60% of its electricity generation, has been grappling with a power crunch in recent weeks, leading to electricity rationing for industry in many regions and hurting growth in the world's second-largest economy.

Beijing has taken a raft of measures to boost coal and power supplies, including approving new coal mines and allowing power firms to raise prices for customers.

The NDRC said in a statement late on Tuesday that there were many unlicensed coal storage sites around mines in the main producing areas of Shanxi, Shaanxi and Inner Mongolia, "making it convenient for illegal traders to hoard coal," and "seriously disrupting" the market's operations.

Besides stepping up investigations and strengthening supervision, the three areas also need to establish a reporting system for legal and compliant coal storage sites, and ban those without approvals, the NDRC said.

They should also crack down on illegal profit-making activities such as hoarding and driving up coal prices by using illegal coal storage sites, the statement said.

Spot coal prices hit a record premium over futures on Monday, with trading drying up as Beijing launched an investigation into price index providers.

The probe left coal traders scrambling for price information on spot transactions, and one Shanghai-based trader described the market as "chaotic and pessimistic." [L4N2RM2A0]

The planner is also studying a new mechanism to guide coal prices within a reasonable range over the long term.

In a statement on talks with producers about intervention measures late on Wednesday, the NDRC said details such as price levels were discussed but did not specify what sort of level would be imposed.

However, three major Chinese coal producers - Shanxi Coking Coal Group, Shanxi Jinneng Holding Group and Inner Mongolia's Huineng Group - said on Wednesday they were placing a 1,200 yuan a tonne price ceiling on thermal coal supply in the winter heating season.

A slew of government measures in recent days has seen open interest in thermal coal futures fall sharply as participants liquidated positions.

Other commodities futures prices followed thermal coal down. Coking coal and coke futures also hit their limit down of 9% in Wednesday day trade before shedding another 12% in the night session.

Petrochemicals such as methanol and ethylene glycol closed down 9.03% and 7.25% respectively in Wednesday's day session, while urea, which uses coal as feedstock, declined 7.25%.

Average thermal coal prices for next year are forecast to ease to 700 yuan from 912 yuan in 2021, Morgan Stanley (NYSE:MS) said in a research note to clients on Tuesday.

"We highlight the risk of disappointing average selling prices for coal miners on the back of government intervention," it said.

"Near term, we see policy measures increasing the incentive for producers to push coal production higher for the winter peak season," it added, adding that moderating demand will further narrow the supply-demand gap.

Profits at China's industrial firms rose at a faster pace in September despite surging prices and supply bottlenecks, mainly due to stellar growth in mining and raw materials industries, although power firms profits were squeezed as they struggled to shake off the high costs of coal.

China coal futures slump as govt announces 'clean-up' of illegal storage sites
 

Related Articles

Precious Metals & Energy - Weekly Review and Outlook
Precious Metals & Energy - Weekly Review and Outlook By Investing.com - Jan 23, 2022 2

By Barani Krishnan Investing.com -- Last weekend, I wrote about how irrational exuberance unduly escalates asset values, taking a page from the 1990s speech of Federal Reserve...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email