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The rally in energy commodities following Russia's invasion of Ukraine could derail Chinese plans for using the guiding of the price of coal, which is still a major source of power generation in the country.
The recent policy of Chinese authorities to establish a more direct correlation between coal prices and electricity rates could be upset by the jump in energy commodity prices, including coal prices. This, in turn, could slow China's economic growth, Bloomberg reported on Friday.
On Thursday, Australian thermal coal, a benchmark for the fuel used as an electricity feedstock, hit a record-high, as commodity markets around the world scrambled to assess the impact of the Russian attack on Ukraine on supply.
Also on Thursday, China's top economic planner, the National Development and Reform Commission (NDRC), issued a "reasonable range" for coal prices in the country, "moving to improve the price formation mechanism in the coal market to guide price movements within a reasonable range as the country seeks to ensure stable energy supplies."
"Proposing a reasonable range is not to adopt government pricing for coal, but to establish a range regulation mechanism on the basis of market-formed prices," NDRC official Wan Jinsong said, quoted by Chinese news outlet Xinhua.
Despite the "reasonable range" of prices of coal in China, the country is not isolated from global surges in energy commodity prices, even if its coal industry is huge.
The energy-intensive industries could potentially face unlimited power rate hikes if commodity prices soar, which could slow down economic growth.
Last week, China said it would help run its coal-fired power plants at full capacity in a bid to ensure energy security, despite the climate goals of the world's largest polluter. The Chinese authorities will increase coal supply, and coal-fired power plants will be supported in running at full capacity and generating more electricity to meet the electricity needs for production and residential consumption.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com