China looking to impose new controls on the rocketing coal price

China has so far been losing the war to control commodity prices, but that won’t stop it from trying again.
The post China looking to impose new controls on the rocketing coal price appeared first on The Motley Fool Australia. –

China is considering imposing price controls to tame the raging coal market as it grapples with a looming energy crisis.

If you fail the first time, try and try again seems to be the motto of the Chinese Communist Party.

Never mind that authoritarian price controls have failed in the past! Chinese officials are reportedly thinking about capping the price miners can sell coal, reported Bloomberg.

Commodity price surge feeding inflation

This is in response to surging demand for electricity as power plants struggling to keep up due to the lack of cheap coal.

Not coincidently, China’s factory gate inflation surged to its highest level since 2008 in May. The producer price index increased 9% from the year before. This is higher than the 8.5% median forecast that economists surveyed by Bloomberg where expecting.

As I reported on Monday, Beijing’s embargo on Australian coal is contributing to the coal problem. Power utilities may have to ration electricity as unseasonably hot weather and a ramp up in factory production post-COVID-19 are putting a strain on supply.

China thinks it can control prices

It’s interesting that China believes capping prices can make the problem go away. If anything, higher prices stimulate supply and vice-versa.

But this isn’t stopping the Chinese government from testing the theory. The price cap is being trialled at at Yulin, a major production base in north western Shaanxi province, according to Bloomberg.

This isn’t the only idea that’s being tested. Chinese authorities are considering enforcing a limit of 900 ($181.84) yuan to 930 yuan a ton on the benchmark price at the port of Qinhuangdao. The hope is that this will influence other markets nationwide.

Coal price near record highs

The price of coal at Qinhuangdao jumped to a record high of 962 yuan a ton on May 19 before moderating to around 865 yuan. That’s still well ahead of the historical average of 547 yuan a ton.

“Under this scenario, power plants would be advised by the authorities that they can’t buy coal above that level,” said Bloomberg.

Again, it’s difficult to see how these ideas will increase the supply of coal, which is at the heart of the problem.

Same controls, different results?

The demand-supply imbalance is made worse by China’s move to close unsafe mines following a spate of fatal accidents. It’s doing this ahead of the 100th anniversary of the founding of the Communist Party next month.

No official decision has yet been made and it’s worth noting that China has unsuccessfully tried to control the commodity price before.

Market manipulation can worsen the problem

No surprises that didn’t work. What’s surprising is that the Communist Party is using the same playbook again but expecting a different outcome.

“China produces and consumes mostly its own coal and the supply chain is dominated by state-owned firms,” said Bloomberg.

“But the precedent of imposing price controls could still rattle other commodities markets that rely on imports and the private sector.”

The post China looking to impose new controls on the rocketing coal price appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

More reading

Why the CSR (ASX:CSR) share price is surging today

Brendon Lau does not own shares mentioned in this article. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!