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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)