Date
18 October 2017

Tug-of-war between coal suppliers and power plants

As the year-end draws near, negotiations on thermal coal supply contracts for 2014 between coal mining giants and power generation behemoths are set to begin in China. Both sides have been seeking more bargaining chips before commencing the talks.

Reduced output in the industry should help keep coal prices high as some weak players had been squeezed out during the market downturn in recent years. Coal production across the country during the first ten months this year has fallen by about 10 million metric tons from a year ago, according to reports.

The Bohai Rim Steam Coal Price Index, a widely-quoted benchmark for China’s thermal coal market, has been on the rise for six consecutive weeks. The prospect of 5500 kcal/kg thermal coal regaining the 600 yuan (US$98.47) per ton level is almost a certainty, rebounding from its recent October trough of slightly above 520 yuan.

Since coal fuel accounts for about 70 percent of the operating cost of domestic power generation enterprises, big electricity production groups are rushing to buy cheaper imported coal as a cushion amid the coal price rebound in the domestic market.

According to the 21st Century Business Herald, coal import volume is expected to rise as power plants seek alternatives to restock fuel before the negotiations on new contracts with domestic coal suppliers.

A long and stiff tug-of-war between power groups and coal players over the contract price on coal supply next year is on the cards.

– Contact the writer at hcwong@hkej.com

RC

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