After a series of miscalculations, China's government has called on mining companies to supply more coal and sell it for less as the threat of shortages takes precedence over pollution concerns.
For much of 2016, the government has been pressing coal companies to move faster on cutting their huge surplus of production capacity, which has been blamed for slumping prices over the past four years.
In February, the cabinet-level State Council ordered the industry to slash 500 million metric tons of annual production capacity in three to five years and consolidate an additional 500 million tons under more efficient operators.
China's top planning agency warned for months that the mines were cutting too slowly to meet their reduction targets for 2016.
At mid-year, the industry had achieved only 29 percent of its goal. By the end of August, the closures had reached 60 percent of the target, the National Development and Reform Commission (NDRC) said.
That was when officials started worrying about the opposite problem. China, which accounts for about half the world's coal output, might have too little on hand rather than too much.
Inventories sank at China's coal-fired power plants to less than 20 days' supply before the winter heating season started and prices began to climb.
"Efforts initially aimed at reversing a four-year collapse and help miners repay debts have pushed coal higher and faster than anyone anticipated," Bloomberg News reported after prices at China's main coal port jumped to 672 yuan (U.S. $97.40) per ton on Oct. 31, the highest since 2012.
The increase represented a rise of over 50 percent since June, the South China Morning Post said. Spot market prices for steam coal hit 710 yuan (U.S. $102.95) per ton on Nov. 4, according a Reuters report.
An early cold snap in northern regions also contributed to the price spike for China's dominant fuel.
The NDRC responded by calling a series of emergency meetings with coal companies "to admonish producers for not regulating their pricing activities," an official statement said.
The agency sought pledges that the mines would set lower prices for their 2017 supply contracts with major customers such as coal-fired power plants.
The government demanded a rate that would be about 7 percent below the Nov. 4 spot price, according to Reuters calculations.
The second-largest producer ChinaCoal (China National Coal Group Corp.) was the first to respond. The state-owned company initially agreed to a modest price cut of 10 yuan (U.S. $1.44) per ton.
The move was seen as part of a government campaign to persuade both producers and the market that the surge in coal prices had been unjustified.
An unidentified NDRC official told the official Xinhua news agency that high prices were "irrational and unsustainable," citing a recovery of inventories at major ports and power plants.
"There is no basis for recent increases in coal prices in China to be sustained, and prices might even drop after sporadic factors fade away," the official said.
The NDRC also authorized 900 mines to boost output by a collective 1 million tons per day to ease market pressures, but the effect of its serial interventions in the market remained unclear.
Bowing under pressure
Jiang Kejun, a senior researcher at the NDRC Energy Research Institute, said the agency's suggestions "have no legal binding force, and some may still choose to lift output to cash in on the current market," according to the Communist Party-affiliated Global Times.
By Nov. 8, ChinaCoal and industry leader Shenhua Group Corp. appear to have bowed under pressure as they signed supply contracts with power generators under the watchful eye of government officials.
The contracts with a base price of 535 yuan (U.S. $77.43) per ton were 24 percent below spot market rates, Bloomberg said.
While the price crisis has raised concerns about power company costs and losses, there have also been worries about a bubble and sudden collapse.
"ChinaCoal hopes to see more stabilized coal prices. Any big drops or big falls in prices will hurt both producers and utilities," ChinaCoal spokesman Jiang Chun told Reuters.
While the government has acted to cool off the market, its policy decisions have been a major source of the volatility.
Faced with the threat of declining economic growth rates this year, the government boosted activity with a wave of stimulus projects, supported by a flood of easy bank loans.
The result has been a partial turnaround in power consumption and other coal-intensive industries like steel and cement, which had also been under pressure to cut overcapacity.
Steel production lines that had been slated for closure rushed to reopen and take advantage of rising prices to offset previous losses.
In the first 10 months of the year, crude steel production increased 0.7 percent to 673 million metric tons, compared with a 2.2-percent decrease, according to National Bureau of Statistics (NBS) data.
Cement production rose 2.6 percent, reversing a 4.6- percent decline in the year-earlier period, the NBS said.
Electricity consumption jumped 4.8 percent after edging up 0.8 percent in the 10-month period a year before, the NDRC said. But the five largest power producers posted their first combined loss on coal-fired power since 2012 in the first three quarters due to higher fuel costs, Xinhua reported.
The effect of the government's emergency push for more coal is still uncertain.
October production rose 1.7 percent from September, but 10-month output remained 10.7 percent below year-earlier rates, the NBS said. China's coal imports soared over 55 percent last month from a year before.
Last week in a reversal of previous cuts, the NDRC urged coal mines to increase their annual schedule of operations to 330 working days from the earlier limit of 276, Reuters reported.
The government may have succeeded in stabilizing the gross domestic product with third-quarter growth of 6.7 percent, but the consequences may have been price instability for coal and smothering clouds of smog.
Declines over two years
In its annual World Energy Outlook report released last week, the International Energy Agency (IEA) noted declines in China's coal consumption for the past two years since a possible peak in 2013.
But the Paris-based IEA left open the possibility that China's coal use could rise above the "historical peak" over the "medium term," suggesting that the effects of economic stimulus spending, stronger electricity demand, and lower hydropower generation could last for years.
The sequence of events raises questions about the government's interventions. Did it interfere with market forces too little or too much, or should it have intervened at all?
Arguably, loss-making coal mines would have felt market pressure to cut overcapacity anyway after four years of falling prices, but in China many have been kept afloat by state banks and ties to local interests.
Without some intervention, little progress on pollution would be possible under the partially marketized system.
Under a market system, higher coal prices would create pressure to use less.
Philip Andrews-Speed, a China energy expert at National University of Singapore, sees more than one clash between China's policies and its goals.
"The Chinese government faces two parallel sets of dilemmas in the energy sector: central planning versus the energy sector and keeping energy cheap versus keeping it clean," he said.
The government could have let coal prices rise, leaving power companies to pass on the increase to consumers under newly introduced power market reforms, Andrews-Speed said by email.
"But I guess that this was seen as too risky," he said. "So instead, they will stagger through a series of reactive policy adjustments."
Target-setting may be the source for much of the trouble.
The government's insistence on GDP goals seems to have triggered a chain of reactions. Stimulus-driven pressure for production has been followed by overcompensation that disrupts demand and drives the market to extremes.
The policy conflicts have led inevitably to contradictions.
"ChinaCoal's price cut is just to please China's central planners and has nothing to do with economics," said a blog at www.barrons.com.
The blog cited a Goldman Sachs commentary, noting that coal miners have historically supported prices at the end of the year to gain leverage in annual contract talks, but the government has now pushed them to lower their prices instead.