Chinese thermal coal prices21 Sep 2020 15:02
By Bloomberg News
(Bloomberg) -- Thermal coal prices in China are inching closer to the point that could spur government intervention to cool the market.
The spot price at Qinhuangdao port rose to 591 yuan a ton on Friday, 2.2% higher on the week, according to the China Coal Transport & Distribution Association. That’s just shy of the 600 yuan mark that analysts think could trigger government action if the gains are sustained. The November futures contract in Zhengzhou, meanwhile, has nosed above that level for the third time this month.
The port price has rebounded after tumbling to 464 yuan in May. Safety checks and a shortage of sales quotas at mines, plus restrictions on imports, have crimped supply just as demand has improved in line with China’s emergence from the worst of the pandemic.
While current prices are still reasonable, “if they rise above 600 yuan and stay there, the government is likely to consider policies such as increasing output,” said Tian Miao, an analyst at Everbright Sun Hung Kai Co. in Beijing.
China is the world’s largest producer and consumer of coal and low electricity prices are crucial to keeping the recovery on track. In May last year, the government asked miners to help reduce prices to below 600 yuan to ease the burden on power plants after the benchmark grade rallied to 634 yuan. The government has typically targeted a band of 500 to 570 yuan a ton as a level that adequately balances the needs of miners and utilities.
Still, there’s less pressure on the government to act this time around, according to Tian. China’s economy is forecast to grow only moderately in the wake of the health crisis and there’s less impetus for prices to rise, she said.
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