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China aims to rein in coal prices

30 Jun 2010 02:22 (+01:00 GMT)

London, 30 June (Argus) — China's top economic planning body the NDRC has asked domestic coal producers not to raise prices this summer to minimise inflationary pressures on the economy.

China's coal imports are likely to fall, if utilities can buy cheaper coal at home. The government's last intervention in China's supposedly liberalised coal markets, ahead of the Beijing Olympics in the summer of 2008, put a brake on additional supply and raised fears of a shortage.

As a first step to “maintain price stability”, the agency has called on major state-controlled coal mining companies including Shenhua, Inner Mongolia Yitai and Shanxi Coal, not to raise their term supply contract prices this year. “Coal is an important position in the national economy. Rising coal prices not only affect downstream sector operations, they will aggravate society's expectations of inflation,” it says.

Mining firms have signalled their willingness to comply with its request, the NDRC says. But any which “arbitrarily increase” prices face investigation, it adds.

Beijing is concerned about inflation now that economic recovery is clearly under way. The weighting of fuel in China's retail price index of goods is unknown, but fuel prices are rising more sharply than any other component — about 19pc from a year earlier — and at a faster rate than last year.

Term contract prices between coal miners and utilities this year are 8-10pc higher than in 2009, or $75-80/t for 5,500 kg/cal grade coal. Domestic spot prices have traded at a premium to regional benchmarks almost all year.

In June 2008, three key Chinese mining provinces capped thermal coal prices at 860 yuan/t ($125/t) in response to soaring prices. The move deterred mining companies from increasing supplies, causing shortages. Beijing lifted the caps six months later after the economic crisis brought demand crashing back to earth.

China, the world's largest coal producing country, has been a net importer of thermal coal all year but imports have been declining in recent months. Net imports in May of 2.39mn t in May were 1.82mn t lower than in January, the peak import month this year. But coal demand in the second quarter tends to be seasonally weak.

Most buying tends to be stockpiling ahead of peak electricity demand in July and August. Utilities have been reluctant to buy more than the minimum necessary because spot prices are over $100/t. And industrial demand for coking coal is currently low as steel prices have fallen.

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