China to press for long-term coal supply deals

A man operates a tractor to crush coal, one of the fuels used by the thermal power industry, in Huaibei, Anhui province. [Photo by WU HE/CHINA DAILY]

Medium and long-term contracts with a duration of more than one year would account for more than 75 percent of the supply deals signed by coal and power enterprises both at the central and local levels in 2018, the National Development and Reform Commission said in a document published on Wednesday.

Railways, ports and shipping enterprises should give priority to such contracts, according to the document.

Coal and utility enterprises should sign the deals based on independent will and market demand. There should be more direct contracts between the suppliers and buyers of coal to cut transaction costs and push for the healthy development of the sector.

The NDRC will strengthen supervision of medium and long-term contracts of more than 200,000 metric tons and make sure that more than 90 percent of such contracts will be fulfilled in 2018.

"Long-term contracts help calm volatile coal prices as coal suppliers and buyers will establish stable and effective cooperation," said Zhou Dadi, a senior researcher at the China Energy Research Society.

"There will be fewer price hikes in the coal sector due to temporary supply shortages, temperature drops or speculative activities. Most of the bulk commodities are traded through long-term contracts in the world since they can ensure stable market expectations and improve transportation efficiency," he added.

Han Xiaoping, chief information officer of China Energy Net Consulting Co, said: "Apart from coal enterprises, there should be long-term contracts between transportation, power generation, transmission and distribution companies to ensure stable electricity prices."

China holds one-third of the world's coal reserves and this accounts for around 70 percent of the nation's basic energy needs.

"Although the country has been striving to optimize its energy structure by introducing more renewable energy, coal is expected to remain a major energy resource in China over the long-term," said Han.

During the first 10 months of this year, profits of the coal mining and washing sector surged six fold to 250.6 billion yuan ($37.9 billion), according to the National Bureau of Statistics, benefiting from deeper supply-side structural reform, which targets reduction of outdated capacity and production costs.

China's coal production reached 300 million tons in September, up 7.6 percent year-on-year, according to the National Bureau of Statistics.

The same data showed that coal production increased 5.7 percent to 2.59 billion tons during the January-September period, compared to the same period a year ago.