Could the bull run in coal prices be nearing an early end?

China seems to have hit some success after putting the clamps on coal ‘speculation’, driving thermal coal futures to their biggest weekly loss in five years.

Coal prices remain well above target prices, but the stern hand of the CCP and measures to increase supply have seen prices slide to the 10% limit on numerous days, falling a further 9.26% to 925.2 yuan per tonne (US$144/t) on Monday morning.

Thermal coal futures hit a record 1,982 yuan on October 19.

Figures from state planners show the country’s energy squeeze has eased since the middle of October. The unwind of the supply crunch from boosted domestic production has also seen prices for industrial and base metals like aluminium recede from recent record highs.

Smelters, and particularly aluminium smelters, are extremely energy intensive, so when coal supply increases, the risk of shutdowns, restrictions supply issues and price shocks subsides.

“China’s coal shortage looks to have eased last month with the number of provinces facing significant power shortages (>10% supply‑demand shortfall) falling from 18 provinces in early October to only 2 by mid‑October,” Commbank analyst Vivek Dhar said in a note.

“The number of coal power plants with dangerously low coal stockpiles (less than 7 days) has also decreased by 90% in the same time frame. Rising supply, a crackdown on false rumours and collusion, as well as plans to target a coal price have all helped lower China’s domestic coal prices.

“Coal power accounts for around 68% of China’s power generation. Meanwhile, elevated LNG prices helped thermal coal prices last month, as the economics of gas‑to‑coal switching in Europe and North Asia force coal prices to at least track gas prices.”

Australia is not supplying the Chinese market at the moment and doesn’t look as though it will for a long time to come, so price impacts on the Aussie producers will be muted for now.

Newcastle index coal was fetching US$223.45/t this morning.

The top movers in the materials index today were all lithium plays, with Orocobre (ASX:ORE) up almost 6%, Pilbara Minerals (ASX:PLS) rising by 3.18%, Ioneer (ASX:INR) trading up 6.57% and AVZ Minerals (ASX:AVZ) climbing by 9.86%.

Vulcan Energy (ASX:VUL) extended its losses for a second trading day after the release of a critical short seller’s report, shedding 4% or 50c to close at $12.01.