China’s Coal Price Curbs Roil Industrial Commodities and Stocks

(Bloomberg) — China’s move to curb coal prices to ease its power crisis reverberated across markets, sending coal futures lower by the daily limit while aluminum prices and shares in resources companies also tumbled.

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Investors reacted swiftly to news that the country’s top planning body is considering capping the price that miners sell thermal coal at 528 yuan a ton ($83). The National Development and Reform Commission subsequently said in a statement on Thursday that it has studied what’s a reasonable range for coal prices with miners and power producers, without giving specific levels.

The proposals on pricing, which need approval by the State Council, China’s cabinet, are among a slew of measures from the government to tackle an energy crunch that’s sparked widespread shortages and hampered economic growth.

Coal production is a tightly controlled state industry in China. Setting a limit on prices is unlikely to harm output as Beijing has ordered miners to maximize supplies, which they will do no matter what the cost. The government is driving a frantic ramp-up of energy supplies to avoid further damaging power outages this winter.

The most-active thermal coal contract on the Zhengzhou Commodity Exchange fell for a seventh straight day on Thursday, dropping as much as 9.7% to 1,033.8 yuan a ton. Coal futures have slumped by almost half since hitting a record of 1,982 yuan on Oct. 19.

“The new policy will change the course” of prices, according to a note from Citigroup Inc. analysts including Jack Shang on Wednesday. “The bottom line is, if the government is determined to enforce price control, it would most likely be able to do so.”

Aluminum, one of the most energy-thirsty metals, fell to the lowest level in two months in London, extending a sharp retreat from the 13-year high hit earlier in October. Steel reinforcement bar futures in China also dropped, with key ingredient iron ore slumping as much as 9.6%. Steel production in China has crashed in recent months as the government seeks to rein in emissions and conserve energy.

Among equities, a sub-gauge of energy stocks was the worst performer in mainland China, with the CSI 300 Energy Index sinking as much as 7.2%. Shaanxi Coal Industry Co. dropped by the 10% daily limit in Shanghai. Aluminum Corp. of China, or Chalco, led declines for aluminum producers in Asia, tumbling as much as 11%.

Citigroup had previously predicted that coal prices would peak early next year. The bank expects more power rationing among manufacturers into the winter, resulting in weak demand for steel and non-ferrous metals.

The energy crisis that’s engulfed the world’s second-largest economy is due in large part to skyrocketing coal prices. The NDRC’s plan to control prices would be the government’s most direct intervention yet, after earlier measures to induce more mine supply, release state stockpiles and loosen import restrictions.

China has also urged miners to deliver about an additional 100 million tons of coal in the final three months of the year to help meet winter demand. The authorities are also working on measures to boost the supply of diesel and gas.

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