China’s commodity markets collapsed, driven by a sharp drop in thermal coal prices, after the state planner said he was looking for ways to intervene to cool record fuel prices.
Falling coal prices and increasing supply could dampen output inflation at China’s factories, which hit record levels in September due to an electricity crisis and surging commodity prices.
Thermal coal futures fell from the previous session’s highs on Wednesday, hitting their 8% limit at 1,755.40 yuan (A $ 367.60) per tonne.
Coking coal and coke futures opened down 9% to also hit daily trading limits.
Other energy and base metal prices followed suit, with aluminum and zinc futures collapsing more than 6%. Prices for petrochemicals such as methanol and ethylene glycol and urea, which uses coal as a raw material, have fallen by 8-9%.
“The official intervention has finally sprinkled some cold water on the skyrocketing energy prices. As China mobilizes its massive administrative apparatus, further measures to address the energy crisis are likely,” said Frederic Neumann , co-head of research in Asian economics at HSBC.
âHowever, local price controls don’t go far. At the heart of the problem is a global shortage of energy supplies as winter approaches in the northern hemisphere. the balance between supply and demand is restored, “he said.
China is grappling with a shortage of coal, which powers around 60% of its electricity production, causing disruptions in the electricity supply to factories and homes and hurting the growth of the world’s second-largest economy.
Beijing has taken steps to increase supplies, ordering its two main coal regions to increase production and allowing coal-fired utilities to charge customers higher prices. It also approved new coal mining projects.
Some major coal producers have pledged to cap thermal coal prices this winter and next spring, while China’s energy administration has urged power grid companies to maximize their purchases of electricity from renewable sources. .
But analysts say this hasn’t boosted supply enough, and high coal prices may persist as industrial activity expands.
“This means that rising costs for energy, labor and other costs will be passed on to end consumers, and inflation more broadly,” said Alex Whitworth, head of research on the industry. energy and renewables in Asia-Pacific at Wood Mackenzie.
“The measures are already having an impact on increasing electricity supply, but it will be an uphill battle to bring coal prices in the market under control before the end of the year,” he said.
Associated Australian Press