Gov't has to balance rising prices, overcapacity targets: experts
Faced with surging coal prices, the National Development and Reform Commission (NDRC) will roll out a plan to allow some domestic coal companies to increase coal production under certain circumstances, domestic media reported on Thursday.
The plan shows that the NDRC wants to balance domestic coal supply and demand, but is not willing to overly loosen its grip on the production of domestic coal companies by extending their annual working time, fearing that such a move might run counter to the government's goal of cutting overcapacity in the coal industry, experts told the Global Times on Thursday.
"If the government loosens production restrictions too much, it might suppress the coal price, and the government does not want that to happen," Guan Dali, a coal analyst from the industry portal chem365.net, told the Global Times on Thursday.
The NDRC held a meeting on Thursday with representatives from a number of major domestic coal companies and workers from the China National Coal Association (CNCA), with an aim of stabilizing coal supplies and preventing coal prices from surging too quickly, according to a report from yicai.com on Thursday.
Surging prices
The NDRC meeting convened at a time when China's coal prices are surging fast. The benchmark Bohai-Rim Steam-Coal Price Index (BSPI) rose to 515 yuan ($77.25) per ton by the end of Tuesday, compared with 494 yuan per ton at the end of August 30, the largest increase since the weekly index was released, according to a report by cqcoal.com on Wednesday.
According to a report from the Securities Times on Thursday, the price of thermal coal has surged by about 25 percent since the beginning of July, while the price of coking coal has risen roughly 30-90 yuan per ton in provinces like North China's Hebei Province and Shanxi Province in July.
Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University, told the Global Times on Thursday that the surging coal price was a result of the government's shortening of domestic coal mines' annual working days, which largely suppressed coal supplies.
The NDRC stipulated in February that domestic coal mines can operate no more than 276 working days in one year, down from 330 working days in the past.
About 1.9 billion tons of coal was produced in China from January to July, down 10.1 percent year-on-year, data from shcce.com showed on August 31.
According to Guan, as a result of the hot summer weather, electricity companies' demand for coal is increasing, but coal production and supplies are shrinking, which has resulted in a rise in coal prices in recent months.
He also noted that the rainy weather around July blocked coal transportation corridors in certain regions such as Shanxi Province, causing some electricity firms to run short of coal.
Striking a balance
According to the yicai.com report, dozens of domestic coal companies and coal mines will reach an agreement in the future under the guidance of the NDRC.
The agreement stipulates that domestic coal companies and coal mines should increase their coal production when the BSPI reaches a certain level. But when coal prices fall back down, increasing production will have to cease and the government-demanded working days will be reinstated.
Guan said that the BSPI lags a little behind the market price, but so far it is the most reliable parameter to formulate relevant policies in the coal sector.
Lin stressed that the main objective of the NDRC's plan is to strike a balance between supply and demand, as well as prevent coal prices from fluctuating too greatly.
The NDRC's decision runs counter to some market speculation that on Thursday it might allow domestic coal mines to resume working 330 days annually.
According to Guan, returning to 330 annual working days for domestic coal mines might effectively suppress coal prices. "The government does want coal prices to rise, just not in a too abrupt manner," Guan said, adding that a rise in coal prices would help boost profitability for domestic coal companies.
Guan also noted that if the government brings back the extended 330 working-day requirement, it might impact the efforts of cutting excessive capacities.
"With the rising coal price, some private coal mines have already secretly restarted production," Guan disclosed.
Zhao Chenxin, the spokesman of the NDRC, said at a press conference on August 16 that about 95 million tons of coal had been cut by the end of July, accounting for 38 percent of the yearly target for cutting excessive coal capacities.
The CNCA couldn't be reached for comment, while an employee of the NDRC said he didn't know about the meeting when contacted by the Global Times.
