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Coal traders have been dumping their inventories to avoid losses as prices sink amid a government crackdown on coal hoarding and speculation, part of the effort to secure power supplies after prices continued breaking decade-old records.

Coal prices are finally stabilizing due to tighter regulation of the futures and spot coal market thanks to prompt government intervention. The price of the main steam-coal contract fell from 1,982 yuan ($310) per ton on October 19 to 1,144 yuan on Wednesday, after dropping more than 40 percent at one point. Industry insiders said that as the policy impact continues, the price could fall below 1,000 yuan per ton and stay there for the rest of the year.

This came after the National Development and Reform Commission (NDRC) and relevant departments deployed teams to clean up and rectify coal storage sites in producing areas on Tuesday, as part of the government's latest measures to regulate runaway market prices.

Domestic coal futures plunged on Wednesday, with many categories hitting the daily limit. Coking coal dropped by 8.99 percent to 2,704 yuan per ton, while thermal coal was down over 10 percent to 1,144 yuan, the lowest since early September.

Other measures are coming for the futures market. Starting on Thursday, non-futures company members or clients can't open more than 50 lots in a single day for the monthly contracts of coking coal and coke futures at the Dalian Commodity Exchange (DCE). Also, the daily price limit for coking coal and coke varieties will be 15 percent starting from settlement next Monday.

Plunging prices have changed the mindset of many traders who have stopped hoarding coal in anticipation of higher prices and are now selling it to avoid losses.

Shanxi Muyong Coal Trading, based in North China's Shanxi Province, the major coal producing province in China, has sold over 6,000 tons of coal for the last few weeks, with just a little left in inventory.

The manager of the company surnamed Li told the Global Times on Wednesday that "if someone wants it, they will definitely sell it all."

The company has stopped buying more coal and that won't change soon. "The thermal coal price would continue to go down to 700-1,000 yuan late this year or early next year," Li predicated.

Other traders, who are still in shock over the plummeting prices, are waiting for the picture to become clearer before taking any further action. 

"Recently, the authorities have issued a lot of documents ... every day...we don't know if we should sell or continue to wait and see," Zhao Yang, co-founder of Chinese coal market information site Meitan Jianghu, told the Global Times on Wednesday.

Despite the drops, coal remains expensive, a manager at a power plant in North China's Inner Mongolia Autonomous Region said.

A salesperson in Handan, North China's Hebei Province, a major coal reserve region, said that while prices are volatile these days, his organization is setting prices in line with government policy.

The thermal coal price for medium- and long-term contracts rose 16.6 percent, mainly between September and mid-October, due to tightened power supplies as winter dawns. The rising price ignited speculation and hoarding.

In order to create a fair and orderly coal business market environment, corresponding measures have been taken by the NDRC as part of a broader government effort to clamp down on illegal profit-making activities such as hoarding and price manipulation.

A large number of unlicensed coal storage sites around some mines in major coal-producing provinces such as Shanxi, Shaanxi and the Inner Mongolia Autonomous Region have recently been found.

This came just a week after the NDRC dispatched a team to inspect the Zhengzhou Commodity Exchange on October 19, during which the price moves of thermal coal futures since the start of the year were analyzed. The NDRC's action concluded with a stern crackdown on malicious speculative bets on thermal coal futures.