China coal futures plunge despite surge amid power restrictions

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China coal futures plunge despite surge amid power restrictions

- Coal futures in China posted another record despite a wild rally in the final minutes of trading, underscoring expectations that the government will take more action to tame an extraordinary rally.

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The most-active thermal coal contract on the Zhengzhou Commodity Exchange plunged 5.5% in the last 10 minutes of trading Tuesday morning, closing up 0.4% at 1,835. 5 yuan $287 a ton. Prices had earlier risen as high as 1,982 yuan ton, extending a surge that has seen the fuel more than double since the beginning of September amid blackouts and power restrictions.

Traders are weighing the impact of positive demand as power plants prepare to stock up on fuel for winter against the potential for fresh government intervention and prospective price caps. Officials are also accelerating efforts to ensure coal supplies, urging miners to boost output, raising power prices and curtailing electricity to large industrial users.

Guangxi Province, a major producer of alumina and aluminum in southern China, announced on Sunday that it would impose a 50% premium on electricity prices for the most energy-intensive industries.

Qinhuangdao, a key coal port, reached an agreement with coal miners, power plants and railway operators to cap prices of some supplies at no more than 1,800 for a ton, the Economic Daily reported, citing the country's top economic planner.

Does reliable supply and demand dynamics mean there s a chance coal's gains could continue, said Daiwa Capital Markets analyst Dennis Ip in a research note Tuesday. He said that coal price hikes are likely to happen as the winter heating season approaches. The fuel provides more than half of the country's electricity supply.

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