Xi Jinping Country Takes Action, Coal Prices Drop Immediately

Jakarta, CNBC Indonesia – The Chinese government is considering intervening in sharply rising commodity prices, including coal.

Some time ago, China’s National Development and Reform Commission (NDRC) revealed that it was studying steps that could be taken to intervene in coal prices. They will make every effort to get the price back into a reasonable range.

One of them is to boost production, which was hampered by floods in a number of coal-producing areas. If this is successfully carried out by the government of President Xi Jinping, it is certain that China’s import needs will decrease.

As is known, on October 18, 2021, China’s coal production was recorded at 11.6 million tons, an 8.6% jump compared to the position at the end of last month. NDRC targets production of 12 million tons per day so that coal prices can fall.

According to Refinitiv’s calculations, if the production level in October 2021 is maintained until the end of the year, then in the fourth quarter of 2021 China’s coal production will be 1.07 billion tons. This brings production throughout 2021 to 3.99 billion tons, up 4% compared to 2020 as well as being a record high.

Coal is a strategic commodity for China, because about 60% of the power plants there use coal power. The high price of coal makes it difficult for power companies, especially when demand is also high.

The price of coal is like a roller coaster in October. At the beginning of the month, coal continued to climb to break an all-time high, but after that it reversed to tens of percent, and was at its lowest level in almost 3 months.

According to Refinitiv data, the benchmark coal price at Ice Newcastle Australia for the next two-month contract fell 10.12% to US$ 154.9/ton on Friday (29/10) trading yesterday, Refinitiv data reported. This level is the lowest since 5 August

Throughout this week, coal recorded a decline of almost 19%. Meanwhile, if we look at the all-time high of US$ 280/ton which was reached on 5 October, the price of coal has fallen more than 44%.

China, which continues to try to intervene in the coal market, has made its reference price even lower.

Coal is a strategic commodity for China, because about 60% of the power plants there use coal power. The high price of coal makes electricity companies dizzy because on the other hand the demand is also very high.

The Chinese government has given approval for 153 miners to increase production. The increase in production is expected to lower prices, and the impact has been seen recently.

Recently, it was reported that China would intervene directly by setting a coal price target. Reuters reported the plan was disclosed at a meeting between the National Development and Reform Commission (NDRC) with coal miners, distributors and power generation companies on Tuesday and Wednesday this week.

On the other hand, related to the energy crisis, large Chinese energy companies also had time to seek long-term agreements with suppliers from the United States (US) in mid-October.

A source told Reuters that big energy companies such as Sinopec Corp and China National Offshore Oil Company (CNOOC) were in advanced talks over long-term contracts with US exporters of liquefied natural gas (LNG).

These talks are said to result in a deal worth tens of billions of dollars that will boost China’s LNG imports from the US in the coming years. Previously, gas trade between the two countries had stopped briefly during the 2019 China-US trade war.

[Gambas:Video CNBC]

(hps / hps)