27 May 2019

The mysterious case of the rising coal price

It’s the opposite of what should be happening. Demand for coal has slowed since the end of November when most power plants in southern China finished replenishing their coal inventories. But coal prices have continued to rise.

The Bohai Rim Steam Coal Price Index, a gauge of steam coal price at six ports in China, passed 600 yuan per metric ton to 608 yuan (US$100) last week, the highest price in more than five months. The index has risen for nine weeks in a row, adding almost 15 percent during the period.

So, what’s behind it? The China Times said the inversion is down to manipulation by giant coal miners China Shenhua (01088.HK, 601088.CN) and China Coal Energy (01898.HK, 601898.CN).

According to media reports, the price surge was cleverly crafted to give miners more bargaining power in the annual thermal coal price talks between coal producers and electricity firms. 

Big miners mapped this strategy out earlier this year, according to media reports. China Shenhua and China Coal Energy lowered their coal prices by 7 percent in July to squeeze small players out of the industry. The tactic proved successful, with many local miners going bankrupt and out of business.

In the meantime, the two top miners and other big players, including Datong Coal Industry (601001.CN), were busy expanding their foothold in the market. As of September, the three big players’ combined market share in major coal trading center Qinhuangdao had climbed to 86 percent, the China Times reports.

Then, according to media reports, Shenhua and China Coal managed to sign or renew their contracts with power plants based on the Bohai coal index, a success for the miners given that the price is on the rise.

But power plants have one other option: they can import coal, which in contrast to the Chinese product, is falling in price. According to Chinese customs data, coal imports for the year amounted to 290 million metric tons as of November, a 15.1 percent year-on-year increase.

Domestic coal prices are therefore likely to capped by the rising coal imports.

– Contact the writer at [email protected]



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