context: Both the centre and localities are taking steps to control coal price surges. It remains unclear whether these measures will be effective in the long run, given restrictions on coal production and insufficient high-quality coal imports.
The coal market is cooling down, as authorities start to intervene.
Premier Li Keqiang 李克强 on 19 May 2021 urged coal companies to increase production, marking the first time the State Council urged increasing coal production to ensure supply. Officials of Yulin, a coal-producing city, met with the heads of local coal companies on 19 May, demanding they
- increase production capacity
- develop new coal mines
- control coal prices
- honour contracts
- steer clear of participating in price hiking and stockpiling
Large coal companies have begun to implement supply guarantee policies
- Shanxi's largest coal company Jinneng Group has allegedly confirmed its production increase plan
- Shaanxi Coal and Chemical Industry Group restricted in-province sales of coal to ensure cross-regional sales
Supply-demand imbalances are one of the factors contributing to the price increase
- in April domestic coal production fell by 1.8 percent y-o-y, and imports fell by 29.8 percent y-o-y
- coal demand from coal-consuming industries is nonetheless strong: total electricity consumption increased by 13.2 percent y-o-y in April
The State Council meeting on 19 May also proposed to
- investigate abnormal commodity futures and spot transactions and speculation
- penalise monopoly agreements and misinformation
Pandemic controls in coal-producing areas have been upgraded, restricting coal transportation. This may limit the scale of future coal price drops.