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China’s thermal coal futures mute as Beijing reins in commodity inflation

Trade in China’s thermal coal futures has almost come to a halt, after Beijing stepped up its control of coal prices to rein in the soaring costs of energy and raw materials.

The flagship product for Zhengzhou Commodity Exchange (ZCE) has at times seen as many as 1 million lots exchange hands in a day but recorded a turnover of just 27 lots on Monday.

That was down 99.9% from a year ago and the lowest daily volume since the contract launched in 2015, showed ZCE data.

Liquidity started drying up after Beijing intervened in the world’s biggest coal consuming market last September to cool runaway prices.

In February it introduced “reference price ranges” for long-term and spot thermal coal trades and the state planner has also warned it will punish any price-pushing behaviours in both the physical and futures market.

That has hit both trading volume and open interest in the coal futures, two key gauges of activity in derivatives.

Open interest on the most-traded September contract was 479 lots, equivalent to 47,900 tonnes of coal, down from a peak of 294,273 lots on April 29 last year.

“The priority of China’s futures market right now is to support Beijing’s efforts to stabilise prices by curbing market activity,” said an official close to the Zhengzhou bourse.

“But of course, the market can only perform price discovery and hedging functions if there is sufficient liquidity.”

The Zhengzhou Commodity Exchange (ZCE) has implemented at least six changes to the margin requirement, transaction fees and daily open position limit for thermal coal futures since 2022.

The ZCE declined to comment on the matter.

“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,” said a Beijing-based coal trader.

Beijing has also probed 15 coal price index providers since last October, forcing some influential institutes to stop publishing daily spot coal price assessments.

The Zhengzhou thermal coal prices CZCcv1 stood at 849 yuan ($125.07) per tonne on Monday. Benchmark Newcastle thermal coal NCFMc1 stood at $392.85 a tonne.
Source:Reuters (Reporting by Muyu Xu and Dominique Patton; editing by Jason Neely)

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