China moves to further improve coal market pricing mechanism

China's top economic planner has called for further improving the price-formation mechanism in the coal market to guide price movements within a reasonable range.

Promoting the smooth transmission between coal and electricity prices through market-oriented means will help stabilize coal and electricity prices and the energy costs of enterprises, thus providing strong support for maintaining stable economic operation, the National Development and Reform Commission (NDRC) said in a teleconference.

As a salient primary commodity vital to the national economy and people's livelihood, coal will serve as the main energy source for a considerable period, the NDRC noted.

Tangible steps should balance supply and demand in the coal market to ensure sufficient production capacity, with the medium- and long-term coal contract system further improved.

China released a circular last week to improve the price formation mechanism in the coal market as the country seeks to ensure stable energy supplies.

In the circular, the NDRC put the relatively reasonable range for the medium- and long-term trading of 5,500 Kcal thermal coal at Qinhuangdao Port at 570 yuan ($90.45) to 770 yuan per ton.

In full considerations of logistics and production costs, the NDRC accordingly proposed the ex-mine prices for medium and long-term trading in major coal production areas, including Shanxi, Shaanxi, and Inner Mongolia.

"Proposing a reasonable range is not to adopt government pricing for coal, but to establish a range regulation mechanism based on market-formed prices," NDRC official Wan Jinsong explained. Wan said the move could enable a better combination of the roles of the market and the government to avoid drastic ups and downs in the market.