China Plans Limits on Coal Prices in Fix for Energy Crisis

(Bloomberg) -- China is considering setting new limits on movements in coal prices that could help ease the nation’s energy crisis, though would threaten to curb profits in the sector.

The top economic planning agency is studying plans for a “price formation mechanism to guide the long-term stability of coal prices in a reasonable range,” the National Development and Reform Commission said Tuesday in a statement. Officials are already carrying out work to assess average production costs and help set a benchmark rate.

Prices of physical coal cargoes and futures contracts surged from around the start of last month as China began to experience power shortages that have impacted key industries and risk crimping growth. Action by authorities to curb those gains, and to help miners boost supply, have had an impact, with futures tumbling by about a third in the past week.

Read more: China Tears Up Rule Book in Race to Fix Its Energy Crisis

The most-active thermal coal contract on the Zhengzhou Commodity Exchange fell as much as 7.6% Tuesday to 1,207 yuan ($189) a ton, the lowest intraday price in almost a month. Coal traded 3.4% lower as of 12:30 p.m. local time. 

There’s an increasing risk to coal prices from policy changes, Morgan Stanley analysts including Sara Chan said in a Tuesday note. While the supply and demand balance remains tight, coal prices appear to have peaked as a result of government price intervention and efforts to lift output, the analysts said.

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