Date
21 September 2017
Major coal producers have been lowering prices in the past few months, and users expect to get better prices if they wait. Photo: Bloomberg
Major coal producers have been lowering prices in the past few months, and users expect to get better prices if they wait. Photo: Bloomberg

Frequent coal price cuts spawn new problem

Top coal producer Shenhua has cut its benchmark coal prices yet again. The country’s slowing economic expansion, along with competition posed by imports, has weighed heavily on the market.

But like all merchandises, frequent price cuts have created a new problem: expectations of more price cuts to come. Major producers have been lowering prices in the past few months, so users “know” they will get better prices if they wait. Slow procurement can be reflected in the growing stockpiles in key coal ports.

Still, some describe the latest price cut from June 26 as unusual. Shenhua is behind its sales targets, one power company told China Securities Journal. More rainy days along the coal-producing areas this year increased hydropower supply and lowered demand from coal-fired plants, another power company said, putting pressure on Shenhua to act.

Electricity producers are major buyers of coal and weakening fuel costs are boosting the shares of power firms. Nevertheless, such rally may not last as the government may, under the current pricing regime, order a power tariff cut if the coal price drop sustains.

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CG

EJ Insight writer

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