Regulator aware of lower power production costs; vows fresh steps

China's top economic regulator said on Friday there is room for further adjustment of coal prices, showing the government's firm determination to regulate the runaway coal prices.

The announcement coincides with fears among some industry circles that there might be a power shortage this winter and spring seasons, although analysts are confident electricity supply will be adequate for heating during the period.

Experts said the coal prices will gradually return to a reasonable range with the help of a series of government measures, including boosting output and cracking down on price gouging and hoarding in the market.

The National Development and Reform Commission on Friday said its recent investigation into all coal-producing provinces and key enterprises showed coal production costs are significantly lower than the current spot coal prices, and there is room to further adjustment to coal prices.

The most-traded thermal coal contract on the Zhengzhou Commodity Exchange, for delivery in January, dropped more than 8 percent in Friday's daytime session, extending a continuous plunge triggered by the government's intervention in the strained energy sector last week.

The contract plunged to 973 yuan ($150) a ton, having fallen more than 50 percent from its record high of 1,982 yuan on Oct 19.

Since last week, the NDRC has announced a series of measures to ensure stable supplies and prices of coal, including boosting coal production, working on a pricing mechanism of a base price plus floating price and a crackdown on hoarding and collusion in the market.

NDRC data showed recent average daily coal production increased by over 1.2 million tons, compared with the figure in September.

On Sunday, coal stockpiles at the country's major power plants reached 95.69 million tons, up 17 million tons from the end of September, which are adequate for 17 days of consumption.

A new report released by the China National Coal Association showed the average daily coal production of key coal enterprises reached 6.93 million tons from Oct 1 to 13, up 4.5 percent month-on-month.

The report said coal companies will ramp up production and boost output, and China's coal production is set to continue to grow in the future.

Song Qinghui, an independent economist, said the rally in coal prices is a result of multiple factors, including insufficient domestic coal production and the rising commodity prices in the global market.

Song said the rising coal prices will increase the costs for manufacturing enterprises and affect the recovery of the economy, and the government's regulation of the market will help stabilize the prices in the future.

Bai Wenxi, chief economist of IPG China, said the government measures to tame rising coal prices will help cool the red-hot market.

Facing a tight coal supply situation and government intervention in the strained energy market, coal companies should strive to boost output while ramping up efforts to reduce costs and increase efficiency, in a bid to spur the sustainable development of the companies, Bai said.

As the rally in coal prices has increased costs for downstream manufacturing enterprises, such companies should take new measures like optimizing the process, innovating in technologies and adjusting product structure to ease fresh pressure on rising costs, Bai said.