Some coal prices rose by 5%
On January 15, the deadline for the "Development and Reform Commission's determination to complete the signing of the 2013 electric coal contract" passed. However, many electric coal enterprises still failed to reach an agreement on pricing, with most contracts being based on quantity rather than price. The issue of coal prices remains a key point of negotiation.
Despite this, the final coal price set by major coal companies such as Luan Group, Datong Group, Shenhua Group, and China Coal Group was 5% higher than that of 2012. This marks a significant shift as 2013 is the first year following the cancellation of coal price controls and the full marketization of the coal industry. As a result, negotiations between power companies and coal producers have been intense and complex.
Analysts believe that due to the ongoing transition to the new coal mechanism, the bargaining process between these two sectors is expected to be challenging. With thermal coal prices continuing to fall and increased competition from imported coal, it’s anticipated that this year’s coal contracts may be signed at levels lower than last year.
As of January 15, the national coal production, transportation, and demand summary had reached 830.43 million tons. While the contract signing process is still underway, most power and coal companies are currently focusing on quantity rather than price.
According to reports, some power companies and coal firms have already reached agreements, but they have opted for fixed pricing over the previously proposed floating rates. However, there is still disagreement over the exact amount of the price increase. Power companies aim to limit the rise to around RMB 20 per ton compared to 2012, while coal companies are pushing for a larger increase.
Currently, power companies hold a stronger position due to high stockpiles and a relatively loose supply-demand balance. This gives them more leverage in negotiations, making it less likely they will accept significant price hikes from coal producers.
Yin Xilong, an analyst at Guotai Junan Securities, suggests that with the slow recovery of the economy and limited capacity release in Shanxi during the first half of 2013, the average spot coal price is expected to drop significantly from 2012. Downstream industries, especially power companies, are likely to resist any price increases.
Dai Bing, an analyst from Treasure Island, noted that current coal prices are based on the Bohai Sea thermal coal benchmark, which is around RMB 10–20 per ton. Prices from major coal producers like Zhao'an Group, Datong Group, Shenhua Group, and China Coal Group have risen by approximately 5%.
Most parties are still quantifying their contracts without finalizing prices, and official announcements are expected after January 18. If disputes persist, power companies could choose not to sign and instead purchase coal at market prices.
On January 16, the latest average price of 5,500 kcal thermal coal in the Bohai Rim region closed at 633 yuan/ton, down by 2 yuan/ton from the previous period. Analysts say the weak demand and rising imports are putting pressure on domestic coal prices, with port and power plant inventories remaining high.
The ongoing dispute over annual and long-term coal contracts has created uncertainty, leading to cautious market sentiment and continued downward pressure on thermal coal prices. Xinyu Xin believes that the new coal mechanism is still in the adaptation phase, prompting traders to take a wait-and-see approach.
Meanwhile, the increasing import of coal is also affecting the domestic market. In 2012, China's total coal imports reached 290 million tons, up 59% year-on-year. With the U.S. reducing coal consumption due to shale gas, global coal exports have surged, further impacting the Chinese market.
Peng Jingang from China Merchants Securities points out that the sluggish global economy and weak energy demand suggest that China's coal imports will remain high, keeping prices low and further pressuring domestic coal producers.
Overall, power companies have stronger bargaining power this year, while coal enterprises find themselves in a weaker position. Dai Bing predicts that this year’s coal consumption will be similar to or even lower than last year, with southern coastal power plants potentially relying more on imported coal due to its cost advantage and reliability.
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