New mechanism set to keep prices of fossil fuel within reasonable range

China is working on a mechanism to stabilize the currently runaway coal prices over the long run, the country's top economic regulator said on Tuesday.

The National Development and Reform Commission said it is looking into reasonable costs, normal profits and market changes in the coal sector to study a pricing mechanism of a base price plus floating price, which will help keep coal prices within a reasonable range over the long run.

It will work to ensure the pricing mechanism meshes well with the recently announced market-oriented pricing mechanism for coal-fired electricity, and it will crack down on behaviors that do not strictly implement the required market-oriented pricing mechanism, the NDRC said in a statement on its official WeChat account.

According to the NDRC, more efforts will be made to strengthen regulations, bring the coal market back to rational operations and promote the sustainable and healthy development of the coal and power sectors.

A new report released by the China National Coal Association said China's coal consumption increased rapidly during the first three quarters due to multiple factors, including the sustained and stable recovery of the economy from the impacts of COVID-19 and strong seasonal coal demand.

According to the report, China's coal supplies have already shown signs of picking up with the help of the sector's efforts to ensure stable supplies and prices.

Energy conglomerate China Energy Corp, also known as CHN Energy, said the company will make every effort to ensure sufficient coal supplies in the country with all its coal mines in full production.

The company reported 410 million tons of coal production during the first nine months of this year, up nearly 5 percent year-on-year. Coal sales rose more than 9 percent year-on-year while thermal power generation exceeded 690 billion kilowatt hours, up almost 18 percent year-on-year, said Wang Jingang, spokesperson of CHN Energy.

The corporation has provided 437 million tons of coal via long-term agreement during the January-September period. The coal mines under the corporation are also stepping up coal production, it said.

This is in response to the announcement made by the NDRC earlier this month urging the country's coal mines to ramp up production and boost output.

During the past week, the NDRC announced a series of measures, including a crackdown on hoarding and collusion in the market, to boost coal supplies and contain rising coal prices.

Tao Jin, deputy director of the Macroeconomic Research Center at the Suning Institute of Finance, said the government's recent moves to tame rising coal prices will help cool the red-hot market and bring record high prices back to a reasonable range.

"Government measures to boost output amid a power shortage and the crackdown on illegal activities such as price gouging will help boost market expectations and stabilize prices in the short term."

Zhou Maohua, an analyst at China Everbright Bank, said the country's tight energy situation will gradually ease off with the help of the government's effective measures to stabilize both supplies and prices, and the current high coal prices will retreat to "normal levels" sooner than later.

NDRC data showed recent average daily coal production increased by over 1.2 million tons, compared with the figure in September.

Since Oct 5, coal supplies at the country's major power plants have exceeded their consumption for 20 consecutive days.

On Sunday, coal stockpiles at the country's major power plants reached 95.69 million tons, up 17 million tons from the end of September, which are adequate for 17 days of consumption.

Looking ahead, the China National Coal Association said coal supplies will continue to increase during the coming winter and spring, and prices will gradually return to a reasonable range.