Coal market off despite cold weather

China's coal market continued to cool despite plummetting temperatures and increased demand as the winter heating season looms in northern China.

The Bohai-Rim Steam-Coal Price Index, a gauge of coal prices in northern China's major ports that is published every week, closed at 585 yuan ($89.05) per metric ton, declining by 1 yuan from the level a week earlier. Transaction volumes in the Bohai-Rim steam coal market have been slowing since the end of September after several coal producers reduced sale prices, according to a note issued by the China Coal Transport Association.

Shenhua Group and China National Coal Group cut coal prices by 10 yuan per ton of coal in the northern port market on Sept 28. They were subsequently joined by 24 major local coal companies such as Datong Coal Mine Group.

"The growth in prices will be contained effectively in the subsequent months," said Bi Fangjing, an analyst from JLC Network Technology Co.

The National Development and Reform Commission, China's top economic regulator, has been organizing meetings with coal producers and power companies to encourage the direct purchase and sale of steam coal and fulfill medium and long-term contracts.

The direct purchase and sale of steam coal, which is always encouraged by the government, is a transaction without intermediaries. In such instances, coal companies receive orders directly from downstream customers, bypassing wholesalers and retail channels, which in turn saves time and cost transaction costs.

"The move can also eliminate efforts by the middlemen to realize profits from stockpiling," said Zhang Likuan, a senior researcher from the CEM Energy Information Center.

In order to restrain the rapid growth of coal prices and stabilize supply and demand, long-term agreements are required to be fulfilled strictly by the coal companies.

The NDRC has asked the third party agencies to collect credit data on the companies' fulfillment of medium and long-term contracts.

During the deliberations, Lian Weiliang, vice-minister of the NDRC, urged coal and power companies to increase output capacity, secure supplies and stabilize coal prices.

Coal prices have been rising since early September due to tight supplies. Spot prices of the commodity have soared to 730 yuan per ton from 620 yuan per ton recently.

With the heating season inching closer in the country's northern regions and a decrease in hydropower and solar power, there is tremendous pressure on coal prices to rise.

"The government measures will help stabilize prices, but there is still substantial pressure on coal prices to rise and hence a small increase is inevitable in the fourth quarter," said Zhang.