These high prices and the potential for them to rise even further is likely what prompted NDRC to intervene.

“The price cap will have an impact from now until mid-March,” said Zhai Yu, northeast Asia senior consultant, Wood Mackenzie. “Demand for thermal coal will fall in February during the Chinese New Year holiday. But supply will also fall for the same reason. After the holiday period, demand will quickly return and restocking by gencos will add additional demand. Without the price cap, we do not expect prices for FOB QHD 5,500 to drop below RMB750 per ton until the middle of March, when the need for heating coal disappears.”

The price cap will be difficult to implement, Yu said. The measure impacts thermal coal prices, Yu explained, but it is only the power industry that has called for coal prices to be restricted. “As electricity tariffs are fixed, high coal prices resulted in big losses for the gencos in 2017,” Yu said. “Non-power industries aren’t so bothered by coal price fluctuations as their product prices are market-driven and can adapt accordingly.”

The NDRC has asked railway operators to prioritize transporting coal for power use in the winter. Stability of supply is more important than price to non-power industries. So even if the NDRC caps coal prices, non-power coal users will be prepared to pay more to miners or traders to receive their supply, Yu said.

China’s coal market has increasingly become policy-driven over the past few years, Yu explained. Supply-side reform, stringent environmental restrictions on production, transportation and consumption of coal, and frequent government intervention in price-setting are puzzling market participants and investors alike. This may be a key reason why the price management scheme introduced last year has not been very successful and supply recovery remains muted. Yu said only time will tell how successful raising the scheme’s upper boundary of RMB600 per ton by 25% will be in controlling volatility and stabilizing the market. Meanwhile, seaborne suppliers will continue to benefit from China-driven high prices.