Production will be boosted by at least 300k tons a day in northern regions
China will take steps to bring down coal prices because the most recent rally is not supported by market fundamentals, the Xinhua News Agency reported on Friday, citing officials from the National Development and Reform Commission (NDRC).
That is in line with a Reuters report that stated two major coal-fired power producers banned spot purchases of thermal coal above certain prices amid a bearish outlook for the market in the coming months.
"It was the irrational price increases in the futures market that lifted the spot prices ... The market should pay high attention to the risk brought by speculation," said the unnamed official from the economic operations adjustment bureau at the NDRC.
Increased demand for power station coal and higher prices of steam coal futures have been contributing to a coal price rebound since April, the NDRC official was quoted in the Xinhua report as saying.
Thermal coal futures on the Zhengzhou Commodity Exchange have gained more than 7 percent over the past month, reaching 643 yuan ($100.83) a ton on Wednesday, the highest level since late February.
To bring coal prices back within a "reasonable price range," the NDRC will encourage miners to boost output — adding at least 300,000 tons a day from mines in North China's Shanxi Province and North China's Inner Mongolia Autonomous Region as well as Northwest China's Shaanxi Province.
NDRC says reasonable coal prices are between 500 yuan a ton and 750 yuan a ton.
The State planner expects coal output in the three regions to increase by about 250 million tons this year. Combined coal production in these areas was 2.3 billion tons last year, accounting for two-thirds of the country's total coal output.
Plans are also being made to improve rail capacity for coal transportation from miners in the western part of the country to coal-fired power plants in eastern regions.
Adequate stocks of coal in power plants, improved coal transport and consumption of more clean energy will also prevent a surge in coal prices, said the official.
Meanwhile, China will take multiple measures to stabilize coal prices, including adding production and introducing more efficient capacity.
The NDRC said it will introduce 100 million tons of new coal capacity this year to ensure stable supplies in the market.
Keeping coal prices reasonable will be a win-win, as it will help cut electricity prices, especially for industrial and commercial businesses, while expediating China's overcapacity cuts and supply side reform in the coal sector, the official said.
