China Coal Giants Ink Supply Deals in Effort to Ease Prices

  • State-owned coalminers agree on terms with power generators
  • Base price for mid- to long-term contract 535 yuan/ton: NDRC

China’s biggest coal producers signed thermal supply contracts with major power generators in Beijing on Tuesday as the country’s top regulators push to stop prices of the fuel from rising too much.

Shenhua Group Corp. and China National Coal Group Corp., the country’s two biggest coal producers, signed the deals with state-owned power generators China Huadian Corp. and State Power Investment Corp. in Beijing, according to a statement Wednesday on the China Coal Transport and Distribution Association’s website. Officials from the country’s top price regulator and the agency in charge of state-owned companies were at the event, it said.

China’s drive to reduce overcapacity and streamline its coal industry has sent prices of the bulk commodity soaring this year. The surge has barely eased despite government efforts since September to boost supply, drawing the scrutiny of authorities in China.

“The government is really trying with every measure possible to rein in coal prices,” Leo Wu, an analyst at Guotai Junan Securities Co., said by phone from Shenzhen. “When supply increases further and power plants’ stockpiles build up, I think coal prices will retreat to a more reasonable level.”

Lian Weiliang, vice chairman at top price regulator National Development and Reform Commission and Meng Jianmin, vice minister of the State-owned Assets Supervision and Administration Commission, which oversees the four companies, witnessed the signing of the mid- and long-term supply contracts Tuesday, according to CCTD.

The new long-term thermal coal contract are priced in a floating band around 535 yuan per ton, Xu Kunlin, an NDRC official, said at a separate briefing Wednesday. The contracts will take effect from December, the NDRC said.

China’s Bohai-Rim coal price index fell for the first time since January. Prices fell to 606 yuan a ton, down 0.2 percent from a week ago, according to Qinhuangdao Seaborne Coal Market’s website. Qinhuangdao coal, a benchmark for thermal coal in China, rose to an average 700 yuan a ton as of Sunday, the highest since June 2012, according to data from the China Coal Transport and Distribution Association.

‘Meaningful Moment’

“It’s a very meaningful moment for the companies and for the country,” NDRC’s Lian said of the signing ceremony, according to the statement. “It’s good for the healthy development of both industries, good for coal prices returning to a reasonable level and good for implementing supply-side reforms.”

Regulators have extended the time period that “advanced” miners are allowed to boost supply from Dec. 1 until spring of next year, NDRC’s Xu said. In September, the government allowed some large, efficient miners to raise production to as much as the equivalent of 330 days of output, up from the 276-day restrictions currently in place nationwide.

The country’s biggest coal producers began to cut spot thermal coal prices this month and two of the country’s exchanges increased trading fees for both thermal and coking coal futures contracts on Tuesday. The publishers of a key coal price benchmark in China suspended two indexes because they were deemed to be incomplete and causing “unnecessary” swings in prices.

China will hold its annual coal trade fare from Dec. 1 to Dec. 3 in the coastal city of Qinhuangdao in Hebei province, providing a venue for coal producers and power generators to sign more long-term supply contracts, according to a statement from the China Coal Transport and Distribution Association this week.

A reasonable range for medium- to long-term coal contracts should be 550 yuan to 660 yuan a ton, China Shenhua Energy Co. board secretary Huang Qing said at a meeting sponsored by Citigroup Inc. earlier this month.

— With assistance by Jing Yang

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