(Yicai Global) Oct. 29 -- The most active futures contracts for thermal coal in China fell a further 8.8 percent today after the country’s top economic planning agency said it has brought coal industry associations and key companies to the table to discuss specific measures, such as the shaving of profit margins of local producers, to bring down record-high prices of fuel that are affecting the country’s electricity output.

The measures discussed include the scope, methods, degree and timescale needed to control the price of coal, the National Development and Reform Commission said yesterday. Soaring prices and fixed tariffs have meant that almost all coal-fired power generation is operating at a loss and a number of electricity suppliers have shut down leading to a nationwide power shortage.

Coal futures were trading at CNY971.20 (USD152) per ton at 2 p.m. today on the Zhengzhou Commodity Exchange. Since the commission indicated that it was going to get involved on Oct. 19, the most active futures contracts for thermal coal have halved in value. At the beginning of the year the price was CNY670 per ton and this had tripled to CNY1,982 per ton by Oct. 19.

Price control is the government’s most effective tool to curb rising coal prices because China has ample coal reserves, Lin Boqiang, head of the China Institute for Studies in Energy Policy under Xiamen University, told Yicai Global.

There is some speculation on how what price the government will set. Cinda Futures, citing market reports, said that the commission will fix a pithead price, or price at the coal mine gates, of CNY440 (USD68) per ton and allow it to float by as much as 20 percent. This means that the selling price of coal at ports, including transport and other expenses, will be around CNY900 per ton.

Other reports put the pithead price at CNY1,200 per ton. The local governments of big coal mining areas in Ordos, Inner Mongolia Autonomous Region and Taiyuan, northern Shanxi province have asked their coal miners to hike output and cap their pithead price at CNY1,200 per ton, an informed source told Yicai Global.

Mining costs are around CNY200 (USD31) per ton on average, so between CNY450 and CNY650 per ton will be a reasonable selling price, Lin said.

Although the government can intervene to narrow the profit margins of producers when the prices of essential commodities rise considerably, the coal miners will seek to escape these limitations as soon as there is a substantial imbalance between supply and demand. So improving supply and better managing demand will remain the focus in the future, the source said.

Editors: Tang Shihua, Kim Taylor