China's top five power generators are reportedly in talks with Australian coal producers to buy up to 1 million tons of the fuel at rates cheaper than the domestic spot market, according to a report by the China Securities Journal.

"Negotiations are underway to import coal from Australia," the report, quoting sources within China Datang Corp, one of the big five producers, said.

The coal, to be delivered at the South China port of Guangzhou, is likely to cost about 560 yuan per ton, including taxes and transportation fees, the journal reported.

The price of coal at China's biggest port, Qinhuangdao in North China, reached 585 yuan per ton on Monday, 4 percent higher than imported Australian coal of similar quality. In addition, another 40 yuan per ton was required to transport the substance to feed the power producers in South China.

Some analysts think the possibility of more imports might have the effect of forcing local producers to lower the contracted price for coal. That, they say, would help thermal power producers.

In fact, these two camps had engaged in discussions since December to re-work the annual supply contracts, but failed to reach an agreement.

While the power firms said that coal prices should not be set higher than the previous year's term prices, coal miners insisted that prices should in fact be raised.

Other analysts, however, believe that imported coal would not pose a threat to local coal, simply because no single coal producer had a production capacity large enough to satisfy China's rising demand.

"China needs more than 2 billion tons of coal annually, 10 times that of Australia's total annual output," Huang Shengchu, president of the China Coal Information Institute, said.

"But I do agree that to import coal from Australia is a better deal for China's southern provinces, especially Guangdong and Fujian," Huang said.

China's thermal power producers incurred a total loss of about 39.2 billion yuan last year due to rising fuel costs and lackluster electricity demand. They are likely to face an even tougher 2009, industry officials warned.

(China Daily February 14, 2009)