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Charles Kennedy

Charles Kennedy

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China To Tap Coal Reserves As Prices Soar

China is set to release another 10 million tons of coal from its reserves to prevent shortages amid soaring coal prices and tight supplies in the fifth such release this year.

The Chinese government will release further volumes of coal if the market demands it, the Chinese state planner, the National Development and Reform Commission, said, as carried by Reuters.

Each of the four previous releases were of 5 million tons each.

As per Reuters estimates, China holds around 40 million tons of coal in its reserve bases.

Because of its geopolitical spat with Australia, China has been restricting coal imports from this major supplier, which tightened the coal supply in China and led to surging coal prices. China has been forced to buy increasing amounts of Indonesian and Russian coal to accommodate domestic demand, triggering a more than 25-percent price hike compared to January levels. 

Last month, China began to look to put soaring coal prices under control by starting an investigation into the market and coal prices to prevent speculation and hoarding of supply.

Chinese state planner, the National Development and Reform Commission (NDRC), and the state market regulator announced in June a probe into the coal prices in the world’s largest energy consumer, according to a statement from NDRC carried by Reuters.

The Chinese authorities will “check abnormal trading and speculation, as well as crack down on hoarding and driving up prices,” the statement reads.

The surging price of coal is affecting the downstream sector and the real economy, according to the Chinese state planning body.

China’s coal market has been distorted since the Chinese authorities banned coal imports from Australia as part of the dispute between the two countries, which has affected coal supply into China. Australia used to be China’s second-largest thermal coal supplier before the geopolitical rift at the end of last year.

By Charles Kennedy for Oilprice.com

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