China’s Thermal Coal Futures Stabilize as Beijing Controls Commodity Inflation, Reports Reuters

BEIJING (Reuters) – Trading in China’s thermal coal futures has nearly stopped following Beijing’s intensified measures to control coal prices amid rising energy and raw material costs.

The leading product at the Zhengzhou Commodity Exchange (ZCE) has previously seen daily transactions of up to 1 million lots, but on Monday, it recorded only 27 lots traded. This figure marks a staggering 99.9% drop from the same time last year and is the lowest daily volume since the contract’s inception in 2015.

Liquidity began to dwindle after government intervention in September 2022 aimed at stabilizing the rampant prices in the world’s largest coal-consuming market. In February, authorities introduced "reference price ranges" for both long-term and spot thermal coal trading, cautioning that they would penalize any price manipulation in both physical and futures markets.

This intervention has adversely affected both trading volume and open interest in the coal futures market, which are crucial indicators of trading activity. The open interest for the most actively traded September contract fell to 479 lots, or 47,900 tonnes of coal, down significantly from its peak of 294,273 lots on April 29 last year.

An official close to the Zhengzhou bourse stated, "The priority of China’s futures market right now is to support Beijing’s efforts to stabilize prices by curbing market activity. However, the market can only fulfill its functions of price discovery and hedging if there is sufficient liquidity."

Since 2022, the ZCE has made at least six adjustments to margin requirements, transaction fees, and daily open position limits for thermal coal futures. The exchange declined to comment further on the situation.

A coal trader based in Beijing expressed frustration, stating, “There is no point in trading coal futures anymore as prices are now set by the government, and no one dares to cross the red line, despite the actual supply and demand situation.”

Furthermore, the government has investigated 15 coal price index providers since last October, leading some influential institutions to cease the daily publication of spot coal price assessments.

As of Monday, the price of thermal coal in Zhengzhou was 849 yuan ($125.07) per tonne, while the benchmark Newcastle thermal coal was priced at $392.85 per tonne.