By Amy Lv, Sam Li, Colleen Howe and Lewis Jackson
BEIJING (Reuters) -Prices of coking coal futures in China hit their ceiling for a second successive trading session on Tuesday, amid market chatter about potential government inspections in China’s major coal production hubs that might lead to supply disruptions.
The most active coking coal contract on the Dalian Commodity Exchange jumped nearly 8% to its highest price since March 19 at 1,048.5 yuan ($146.19) a metric ton.
Coking coal, or metallurgical coal, is typically used to produce coke for steelmaking. Coke prices also hit the upper limit.
A document purported to be from the National Energy Administration (NEA) calling for inspections at coal mines in eight provinces to determine whether production exceeded licensed capacity played a part in the price rally, said Simon Wu, a senior consultant at Wood Mackenzie.
“This could potentially reduce the effective supply to the market,” he said.
Reuters could not verify the authenticity of a document circulating on social media from the Henan provincial government which contained inspection orders from the NEA.
A phone call to a number in the document was answered by someone who said they were following instructions from the NEA and not to call again.
The NEA did not immediately respond to a Reuters request for comment.
Prices also hit their daily upper limit on Monday, bolstered by the anticipation of growing demand after Beijing said it had started building the world’s largest hydropower dam in Tibet.
The mega project is expected to generate steel demand of between 3.5 million and 6 million tons, analysts at consultancy Lange Steel said in a note on Monday.
Coking coal prices have gained 28% so far in July after a visit to Shanxi, China’s top coal production hub, by President Xi Jinping earlier this month sparked speculation about a fresh wave of supply reform.
($1 = 7.1723 Chinese yuan)
(Reporting by Amy Lv, Sam Li, Colleen Howe and Lewis Jackson. Editing by Christopher Cushing and Mark Potter)
