The 10-day annual Coal Ordering Conference, which attracted
thousands of people from related industries including coal
producers, power generators and transportation suppliers, ended on
Tuesday in Jinan, Shandong Province.
In order to get sufficient transport facilities from the
government, suppliers and power providers agreed, after a series of
negotiations, to contracts involving a total volume of 812 million
tons this year, less than the expected volume of 1.1 to 1.2 billion
tons.
Despite this, coal suppliers and power producers could not reach
any agreement on price. This means that the contracts signed are
still subject to further negotiations.
Ou Xingqian, vice minister of the National Development and
Reform Commission (
NDRC), announced on January 1
that the government would no longer control prices of thermal coal,
coal used for power production. Coal prices would have to be
decided through independent negotiations between buyers and sellers
starting from this year.
For a long time, thermal coal was traded in China
at two prices: the market price and the set price. The set price,
set by the government, was much lower than the market price, as
much as 80 to 100 yuan (US$9.91 to 12.39) per ton.
Major coal suppliers, who have suffered huge losses from the
price difference, had asked for an increase of 20 to 30 yuan
(US$2.47 to 3.71)?per ton.
"An 8 percent increase only means 20 yuan (US$2.47 ) per ton and
6 percent only 15 yuan (US$1.85). Coal firms in Shandong only asked
for a 6 percent increase," Qiao Naichen, vice director of Shandong
Coal Bureau, said.
Demand for coal is likely to go down further this year when the
government implements its policies of macro-control, and develops a
recycling-focused economy.
According to an NDRC forecast, domestic coal demand and supply
will reach 2.17 billion tons and 2.2 billion tons respectively this
year.
"Deregulation of thermal coal prices while electricity rates are
still fixed by the government will put pressure on power providers.
Every little increase in price will be shifted to the cost of power
generation," said an official from a power company.
Power firms still embrace the hope that the government can still
intervene in pricing even after the deregulation to stabilize
prices, according to an official from a coal enterprise, who
declined to give his name.
China Electricity Council (CEC) said
government controls should remain in place to ensure the
profitability of power generators.
"The government should keep its controls over the supply and
price of coal used for power production, especially in areas where
there is a supply shortage," Wang Yonggan, secretary-general of the
CEC, said during the conference.
"Power prices have an important impact on people's daily life.
If people cannot reasonably afford the prices, the government will
intervene, which coal suppliers are reluctant to see," an official
from a power firm said.
At the heart of the disagreement is how much of the price hike
power producers should absorb.
And it won't be easy trying to convince them. Five of China's
top power producers – China Huaneng Group, China Datang
Corporation, China Huadian Corporation, China Guodian Corporation
and China Power Investment Corporation – have reportedly set up a
private alliance to resist any price hikes proposed by coal
producers.
Reportedly, none of the five signed any major deals at the
conference.??
Despite their current disagreement, coal suppliers and power
providers at least agree that any price hike involves a
step-by-step process, and is not a one-off, according to market
analysts.
They say that for coal suppliers, a one-off price hike, which
might result in a price that cannot be borne by power producers,
will only mean that the government would have to step in the
pricing again. Increasing cost is further eating into coal
production industry's already thinning profit margins.
(China.org.cn by Yuan Fang January 12, 2006)