BEIJING TOKYO - The Chinese government has laid out tools to tamp down skyrocketing coal prices that have choked electric power supplies and hurt the broader economy.
The National Development and Reform Commission, the government's economic planning arm, announced the possibility of an intervention on Tuesday night, after meeting with major coal companies and industry associations to discuss ensuring a sufficient energy supply for the winter and spring.
China's economic growth is slowing in part because of the strain of higher commodity prices. The prospect of authorities taking a more direct hand in the coal market brought down futures that had tripled this year.
In Tuesday's meeting, coal companies were told to abide strictly by medium to long-term contracts that help keep prices stable. Market regulators affirmed they would crack down on price-gouging and hoarding.
Thermal coal futures plunged overnight on the Zhengzhou exchange, with the January 2022 contract closing at 1,755 yuan $274 per ton by the limit of 8%. It hit a record high of 1,982 yuan that day, three times its level at the end of 2020.
In step with the government's efforts, the exchange announced Wednesday that the trading band for thermal coal would be restricted starting that night to 10% and trading by some market participants would be widened.
The NDRC announcement cited Article 30 of China's Price Law, which states that central or provincial authorities may intervene when there is a marked rise in the prices of essential commodities and services. The law lists specific options that include restricting profit margins, setting price limits and requiring that price hikes be submitted to the government.
The State-owned Assets Supervision and Administration Commission of the State Council, which oversees state enterprises, said Monday that securing energy supplies would be an important indicator in its assessments. It cited the drag that shortages and soaring prices have imposed on China's economic recovery from the coronavirus pandemic.
Real gross domestic product grew 4.9% last quarter, a significant slowdown from the previous quarter's 7.9%, while seasonally adjusted growth came in at just 0.2%.
Elevated prices for resources including coal are a major factor. Small and midsize businesses have been slow to pass on the added costs to customers, and their profits have suffered as a result. Both capital investment and the job market have been affected, with new urban employment still languishing below pre-coronavirus levels.
Constraints on China's electricity supply have held back growth as well. Power companies have idled coal, contributing to pricey coal shortages that have avoided factories.
The impact of the coal rally extends to government efforts to ramp up the response to climate change, as well as the availability of winter heating, a point mentioned by the NDRC.
To what extent state price controls can succeed in cooling off the market is unclear. The price rise is not as much driven by speculation as by tight supply. Even if the government keeps a close eye on speculative trading, it won't have any more than a temporary effect so long as the power shortage isn't resolved, said Naohiro Niimura of Market Risk Advisory in Tokyo.
There is also concern that targeting speculators would shut out players who would otherwise sell into a market they consider overpriced, removing one factor that could shift price trends.
Unless this winter is unexpectedly warm, the supply crunch and price surge will likely continue until winter is over, said Nobuyuki Kuniyoshi of Japan Oil, Gas and Metals National Corp.