Contracts ensure long-term coal price and supply stability

Large coal companies in China signed mid－and long-term contracts with power and steel companies on Thursday in order to stabilize fluctuating coal prices.

Shandong-based Yankuang Group, Shaanxi Coal and Chemical Industry Group Co Ltd and Heilongjiang Longmay Mining Holding Group Co Ltd are among the 10 coal companies that signed mid－and long-term contracts with major power and steel companies at the coal trading conference held in Qinhuangdao, a major coal port in Hebei province, on Thursday.

The contract signing followed the one between top coal producers and major industrial consumers at the end of November, including Shenhua Group, the largest coal company in China by output, China National Coal Group Corp, the top five power generation companies and the top six steel smelters.

"Mid－and long-term contracts will assure coal producers of their market share and coal consumers of the production resources, keeping the prices within a reasonable range," said Wang Xianzheng, president of the China National Coal Association.

According to a notice issued in November by the National Development and Reform Commission, coal companies with mid－and long-term contracts will be given priority in transportation and have fewer capacity restrictions. Power companies with mid－and long-term contracts enjoy priority in entry to the national grid.

"The recent fast-rising coal prices have prompted some companies to release capacity. But we need to remain cool-headed that the overall demand for coal has not increased," said Lian Weiliang, deputy director of the commission.

Lian said that the coal supply remains plentiful. After the heating season is over, the price will drop slightly. The government will take measures to ensure that the price fluctuates within an acceptable range.

The price of power-coal at Qinhuangdao Port rose from 370 yuan ($53) per metric ton at the beginning of the year to 550 yuan per ton in September.

"The price hike is partly due to the decrease in hydropower generation this year, which led to higher demand for coal-fired power, capacity reduction and the rising coal price in the international market," said Wang.

Coal prices should be within a range of 550 yuan to 600 yuan per ton, Wang added.

Coal-fired power generation in August, September and October increased by 11.2 percent, 15.8 percent and 18.5 percent, respectively, compared with the same period last year.

According to the CNCA, coal consumption has been on the slide in recent years. The year-on-year decrease was 2.9 percent in 2014 and 3.7 percent in 2015.

This year, total coal consumption in the first 10 months was down 1.9 percent compared with the same period last year. It is expected that total consumption this year will be 3.9 billion tons, down 50 million tons, or 1.3 percent, from last year.