Coal mines, util­i­ties ink long-term price deal

Move to help pre­vent vi­o­lent fluc­tu­a­tions in mar­ket and main­tain or­derly trad­ing

China Daily (Canada) - - LIFE - By ZHENG XIN zhengxin@chi­nadaily.com.cn

China’s ma­jor coal pro­duc­ers and power groups have signed a long-term deal at a fixed price to en­sure sta­ble coal and power sup­plies in the coun­try, in a bid to ham­mer out a strat­egy to halt the per­sis­tent rise in coal prices, said the na­tion’s top eco­nomic reg­u­la­tor onWed­nes­day.

Two of the na­tion’s top coal mines, Shen­hua En­ergy Co and Chi­naCoal En­ergy Co, have signed long-term sup­ply con­tracts with util­i­ties at 535 yuan ($79) per met­ric ton, 25 per­cent below the cur­rent spot mar­ket rates, as the gov­ern­ment ramps up its ef­forts to cool the red-hot mar­ket.

The long-term deal will start on Dec 1, and will help pre­vent vi­o­lent fluc­tu­a­tions in coal prices and main­tain an or­derly mar­ket, Xu Kun­lin, deputy sec­re­tary-gen­eral of the Na­tional De­vel­op­ment andRe­for­mCom­mis­sion, said at a brief­ing onWed­nes­day.

Zuo Qian­ming, an ex­pert with China Na­tional Coal As­so­ci­a­tion, said the price rise has to do with China’s ef­fort to cut over­ca­pac­ity and reg­u­late its coal sec­tor.

“De­spite the fact that ther­mal coal prices have hit a record in re­cent weeks af­ter the gov­ern­ment tried to tighten sup­plies for util­i­ties, caus­ing much con­cern in in­dus­try and among the pub­lic, it is still de­mand driven,” said Zuo.

“How­ever, as coal con­sump­tion de­clines year by year, the coun­try should still stick to re­duc­ing over­ca­pac­ity de­spite the re­cent dras­tic price rise.”

The coun­try’s in­ten­si­fied ef­fort to cut over­ca­pac­i­ty­had led to huge rises this year in the bulk com­mod­ity price, in­clud­ing ther­mal coal.

De­spite gov­ern­ment ef­forts since Septem­ber to boost sup­ply, the surge has yet to be easedand­has drawn­the scru­tiny of the au­thor­i­ties.

Ac­cord­ing to Xu, there were no grounds for re­cent coal price in­creases in the coun­try to be sus­tained, and prices might even drop af­ter spo­radic fac­tors fade away and a pe­ri­odic coal sup­ply glut and price de­cline is likely to fol­low.

“Once the spo­radic fac­tors fade away, a pe­ri­odic coal sup­ply glut and a price de­cline will be high-prob­a­bil­ity events,” he said.

“There­cent coal price surge in China was ir­ra­tional and un­sus­tain­able, and the prices would re­treat as sup­plies in­creased with no ba­sis for fur­ther rises in coal prices.”

Xu added that the sup­ply­de­mand sit­u­a­tion in China’s coal sec­tor has not changed and has reached a bal­ance due to con­trols on out­put.

Once the spo­radic fac­tors fade away, a pe­ri­odic coal sup­ply glut and a price de­cline will be high-prob­a­bil­ity events.”

“The coun­try should firmly stick to the over­ca­pac­ity re­duc­tion pro­gram de­spite the price hikes,” he said.

“In the long term, with coal con­sump­tion ca­pac­ity grad­u­ally de­clin­ing, the coal mar­ket will hardly see any rapid in­crease, and with the newen­ergy grad­u­ally re­plac­ing tra­di­tional en­ergy such as coal, there will be barely any sub­stan­tial growth ca­pac­ity for the coal sec­tor.”

Zuo said the deal would also help avoid a big hike in res­i­den­tial power costs.

This is the first time that the NDRC has held a me­dia brief­ing to dis­cuss this year’s his­tor­i­cal coal price rally and con­cerns about tight sup­plies of the raw ma­te­rial used by util­i­ties.

The Bo­hai-Rim SteamCoal Price In­dex, a gauge of coal prices in north­ern China’s ma­jor ports, rose to 607 yuan per ton ear­lier, the 18th con­sec­u­tive rise and about 63.6 per­cent up on the start of the year.

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