LAUNCESTON, Australia- As the UN COP26 climate summit gets under way in Glasgow amid dire warnings over the planet’s future, the immediate focus in Asia is getting more coal to burn at cheaper prices.
China fired the big guns at its coal markets last week. It unleashed a raft of measures designed to lower prices and boost supply, making a more determined effort to deflate coal than it did in earlier moves aimed at cutting the prices of some metals and crude oil.
Beijing’s efforts have paid some dividends, with both coal futures and physical spot prices tumbling last week. But they remain well above levels the authorities are believed to deem comfortable for both miners and power utilities.
Zhengzhou Commodity Exchange thermal coal futures dropped as low as 941 yuan ($147) a ton on Oct. 29, down 52.5 percent from the record 1,982 yuan reached on Oct. 19.
Spot thermal coal priced at the northern hub of Qinhuangdao also slumped last week, ending at 1,500 yuan a ton on Oct. 29, down 41 percent from its record 2,545 yuan, also hit on Oct. 19.
While these declines are dramatic and rapid, it still leaves both paper and physical coal well above the 530-580 yuan a ton level long viewed by the market as the official preferred zone for prices.
China’s state planner, the National Development and Reform Commission (NDRC), has said that its investigations have shown that “coal production costs are significantly lower than current spot coal prices” and there is room for further declines.
Some media reports have suggested that the NDRC wants to cap the price of benchmark 5,500 kilocalorie per kilogram (kcal/kg) coal at 440 yuan per ton at the mine head, with a potential variance of 20 percent both higher and lower to take account of market conditions.
In effect this would put a ceiling on coal prices of 528 yuan a ton. That’s about a third of the current spot price at Qinhuangdao and half the front-month futures contract, which expires on Jan. 10.
