China’s National Development and Reform Commission (NDRC) has recently instructed regional authorities and related enterprises to ensure that the coal consumed in all the country’s power generating and heat supplying enterprises is sourced under medium- and long-term contracts, according to an NDRC release on September 13.
The country’s power houses and heat supplying enterprises are ordered to sign additional medium- and long-term coal agreements with coal miners based on their existing contracts this year, to ensure their annual coal consumption will be 100% covered by these deals, NDRC noted. The release did not clearly specify whether the order will be effective from next year, however.
Prior to this announcement, last December NDRC had ordered that medium- and long-term contracts should cover by no less than 75% of the coal consumed by the country’s power generating enterprises for 2021, and for those consuming imported coal, the rate should be not less than 80%.
“Many electricity firms have been losing money, chiefly due to the surge in thermal coal prices,” commented an industrial source in East China, adding to in order to meet power demand for household and industrial use, those large-sized plants will have to keep operating, irrespective of the fact that notably raising power prices is almost impossible.
The volatility of coal prices purchased under medium- and long-term supply contracts has been much more moderate than that of spot-market coal this year, Mysteel Global noted. For example, the coal mining giant China Shenhua Energy lifted its price for 5,500 kcal/kg thermal coal in annual long-term contracts to Yuan 677/tonne ($104.6/t) this month. However, sources note that while this is higher by Yuan 12/t on month, it remains far lower than the over-Yuan 1,000/t price for spot coal with the same calorific value at ports in North China, according to sources.
Power and heat generation are the principal drivers of Chinese coal consumption, Mysteel Global notes, are this year the country’s coal prices have been pushed to historical highs. This is because the fast recovery of demand when safety checks at domestic coal miners have become more stringent have caused domestic coal supplies to tighten.
Other than order that medium- and long-term coal supplies to power plants be intensified, NDRC and other authorities have adopted a series of measures over the past several months to boost domestic supply including the provision of permits to restart some large-sized thermal coal mines, as reported.
