[Correspondent Diary] China Urgently Summons Coal and Iron Ore Companies

Price Surge Since Early Year Following China's Large-Scale Infrastructure Investment Announcement
Negligent Inventory Management Risks Recurrence of Korea's Second Yeosusu Crisis

[Asia Economy Beijing=Special Correspondent Jo Young-shin] On the 11th, the National Development and Reform Commission (NDRC) and the National Energy Administration of China urgently convened a special meeting with key coal production-related company officials from Shanxi, Neimenggu, Xinjiang, and Shaanxi provinces. The core message was a strict warning against raising prices through false information. The special meeting indicates that abnormal signs have been detected in coal prices.

As of the 4th of last month, the price of coal (for power generation) in Qinghuangdao was 788 yuan per ton. Qinghuangdao is China’s largest coal port, and its coal price serves as the national standard price. After remaining stable since December last year, coal prices surged to 1,105 yuan per ton (based on asking price) as of the 9th of this month. Prices rose by 40% within a month.

Chinese media such as China Economic Daily and Xinhua News Agency emphasized that the price increase was temporary due to demand for stockpiling ahead of the Lunar New Year holiday and that there were no supply-demand issues. Chinese media stressed that major thermal power plants have coal stockpiles sufficient for 23 days.

The China National Coal Trading Center also explained that coal prices would stabilize once coal production capacity recovers and supply and transportation capabilities strengthen after the Lunar New Year. It added that coal reserves at power plants under integrated management increased by 40 million tons compared to last year, totaling over 165 million tons.

Despite the Chinese authorities’ efforts to stabilize coal prices, there is a high likelihood that coal prices will rise this year. At last year’s Central Economic Work Conference, the Chinese government announced large-scale infrastructure investments as part of economic stimulus measures for this year. It also instructed local governments to expedite the issuance of special bonds. The total amount of special bonds issued by local governments last year was 7.4898 trillion yuan. Considering that 5.7 trillion yuan worth of special bonds were issued by the third quarter of last year, 1.7898 trillion yuan (approximately 337 trillion Korean won) was issued mostly in December of last year. All of this money is intended for early-year infrastructure investment and economic stimulus. Including special bonds to be issued this year, an astronomical amount of money will be poured into infrastructure investment.

In fact, last month, ten Chinese provinces, municipalities, and autonomous regions including Shanghai, Sichuan, Jiangsu, and Hebei announced infrastructure investment plans totaling 3 trillion yuan (approximately 565 trillion Korean won) for this year. They publicly declared plans to pour money into infrastructure such as airports, roads, ports, and railways. Given the limited resources, raw material prices are bound to rise.

Iron ore prices are already showing abnormal signs. Since the beginning of this month, Chinese iron ore prices have sharply increased. As of the 8th, the spot price of iron ore was $149.95 per ton, more than 25% higher than the $119.5 per ton at the start of the year. Futures prices also traded at 841 yuan per ton, up 23.6% compared to the beginning of the year.

The NDRC and the State Administration for Market Regulation hastily summoned iron ore-related companies and warned that they would punish price manipulation and dissemination of false information to raise prices. Chinese steel experts, considering iron ore port inventory levels, stated that there are no fundamental supply-demand issues with Chinese iron ore and that price increases are limited, supporting the Chinese authorities’ stance.

However, the market is quick to sense the scent of money. After the Beijing Winter Olympics and the Two Sessions (National People's Congress and Chinese People's Political Consultative Conference), China’s infrastructure investment will accelerate. Infrastructure investment requires enormous resources. Raw material prices are bound to rise.

In the fourth quarter of last year, Korea’s economy suffered due to coal shortages in China. The Korean urea solution crisis is a representative example. Although it exposed weaknesses in corporate inventory management, it was not highlighted, and innocent public officials bore full responsibility. Chinese raw material prices have a significant impact on international raw material and global manufacturing costs. Since China’s infrastructure investment for economic stimulus is a foregone conclusion, close attention must be paid to fluctuations in Chinese raw material prices. Holding complacent views such as 'Just in Time' inventory management to save costs could lead to another disaster.

This content was produced with the assistance of AI translation services.