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BEIJING, May 18 (Reuters) – China will take steps to bring down coal prices because the recent rally is not supported by market fundamentals, state-owned Xinhua News reported on Friday, citing officials from the National Development and Reform Commission (NDRC).
That is in line with a Reuters’ report that two major coal-fired power producers banned spot purchases of thermal coal above certain prices amid a bearish outlook for the market in the coming months.
“It was the irrational price increases in the futures market that lifted the spot prices … The market should pay high attention to the risk brought by speculation,” an NDRC official was quoted as saying.
Benchmark thermal coal futures on the Zhengzhou Commodity Exchange have gained more than 7 percent over the past month, reaching 643 yuan ($100.83) a tonne on Wednesday, the highest level since late February.
To bring coal prices back within a “reasonable price range”, the NDRC will encourage miners to boost output — adding at least 300,000 tonnes a day from mines in Shanxi, Shaanxi and Inner Mongolia.
NDRC puts reasonable coal prices at 500-750 yuan a tonne.
The state planner expects coal output in the three regions to increase by about 250 million tonnes this year. Combined coal production in these area was 2.3 billion tonnes last year, accounting for two thirds of the country’s total coal output.
Plans are also being made to improve rail capacity for coal transportation from miners in the western part of the country to coal-fired power plants in eastern regions.
The NDRC also said it will ontroduce 100 million tonnes of new coal capacity this year to ensure stable supplies in the market.
($1 = 6.3773 Chinese yuan renminbi)
(Reporting by Muyu Xu and Vincent Lee; Editing by David Goodman)
