Market may stabilize in longer term
There is no basis for recent increases in coal prices in China to be sustained, and prices might even drop after sporadic factors fade away, an official with the country's top economic planning agency said on Monday.
The unidentified official at the National Development and Reform Commission (NDRC) attributed recent coal price increases to both the government's capacity-cutting and production-control measures and periodic, sporadic and irrational factors, according to the Xinhua News Agency.
"Once the sporadic factors fade away, a periodic coal supply glut and a price decline will be high-probability events," the official told Xinhua.
The comments came after coal prices skyrocketed in the past few months, which media reports suggested had sparked concerns among officials and discussions of setting a price cap for coal.
The Bohai-Rim Steam-Coal Price Index, a benchmark index, rose to 593 yuan ($87.5) per ton last week, a year-to-date increase of nearly 60 percent.
Following the price increase, the NDRC held three meetings in a week with the country's top coal miners in a bid to contain the skyrocketing prices, Reuters reported on Sunday.
In the latest meeting, held on Thursday, the agency told leading coal producers to include maximum prices in their 2017 supply contracts at or below current spot market levels, Reuters reported, citing sources familiar with the matter.
According to Reuters, the NDRC asked miners to agree to 2017 supply contract prices at or below 12 cents per kilocalorie (kcal) for 5,000 kcal thermal coal and for 5,500 kcal thermal coal. The equivalent prices are 600 yuan per ton and 660 yuan per ton, respectively.
Long-term contracts with price caps could help to stabilize the coal market, if they are honored by power companies, noted Li Chaolin, a Beijing-based coal researcher.
However, "in China, coal producers are on the weaker side of the bargain. When coal prices are extremely low, many power firms choose to ignore their long-term contracts and use the spot market," Li told the Global Times Monday.
The NDRC official on Monday did not mention the reported meetings in the interview with Xinhua, but vowed to take various measures to ensure balance in coal supply and demand and intensify crackdowns on illegal actions to lift coal prices.
The NDRC official also urged coal companies, especially major ones, to take a leading role in efforts to stabilize coal prices and other companies to eliminate panic sentiment and avoid blindly raising prices further.
Li said the hike in coal prices will not alter the nation's campaign to tackle overcapacity in coal and steel.