Move to protect power supplies as prices surge
Major domestic coal producers Shenhua Group and China National Coal Group Corp have stopped selling thermal coal on the spot market, the Securities Daily reported on Monday, a move that experts said is intended to ensure sufficient supplies to power generating companies amid soaring prices.
The move is in line with a policy announced in April by the National Development and Reform Commission (NDRC), China's top economic planning body. At that time, the NDRC urged coal producers to sign mid- to long-term contracts with power generating plants in order to increase the effective supply of coal.
Under the policy, "coal producers need to ensure the supply to power generating plants," Guan Dali, an analyst from industry portal chem365.net, told the Global Times on Monday.
The Bohai-Rim Steam-Coal Price Index (BSPI), which tracks thermal coal spot prices at major ports in Northeast China, was 574 yuan ($84) per ton on June 20, up 1.77 percent from a week earlier, according to the latest data from cqcoal.com. The website is authorized by the NDRC to publish the BSPI.
The thermal coal price was 600 yuan per ton on Monday, up 16 yuan from the end of May, according to data monitored by the Lange Steel Information Research Center.
Shenhua and China National Coal signed long-term contracts in November 2016 with thermal power generating companies, with prices anchored at 535 yuan per ton, according to the Xinhua News Agency.
Prices have been rising partly because of "restricted supplies from North China's Inner Mongolia Autonomous Region," Guan noted. Inner Mongolia is one of the nation's major coal-producing regions.
"Strict government pollution checks in Inner Mongolia have led to a quota reduction for mines to sell coal," Guan said, noting that the region is also preparing this year to celebrate the 70th anniversary of its establishment.
In North China's Shanxi Province and Northwest China's Shaanxi Province, two of the top coal producers in the country, coal production is being limited as many mines have been over-exploited, Jiang Haihui, a senior futures analyst from SHZQ Futures, told the Global Times on Monday.
Jiang noted that constrained supply and anticipation of higher consumption in summer have pushed thermal coal prices higher in recent weeks.
The high prices are a burden for power generating plants, said Jiang, noting that these plants will suffer losses if the thermal coal is sold more than 630 yuan per ton.
The country relies on coal to generate about 65 percent of its total electricity, according to media reports.
An unidentified NDRC official told a meeting on Saturday that China will keep coal prices from increasing dramatically, according to media reports. If coal companies want to charge more than 570 yuan per ton, they must notify the NDRC three to five days in advance, said media reports.
On June 22, Shenhua raised the price for thermal coal to 590 yuan per ton, up 20 yuan from June 1, according to the Securities Daily.
The NDRC in January set benchmark prices for mid- and long-term contracts of major coal and power companies, as well as steel manufacturers, to prevent volatility in coal prices.
According to the NDRC's mechanism, if the coal price is above 600 yuan per ton or below 470 yuan per ton, the government will take measures including raising inventories to adjust the price.
