“Big Five” Power Firms Squeezing Coal Prices by Threatening Global Purchasing
CSC staff, Shanghai 18 February 2009
State-owned power companies and coal companies are at war over coal prices. To push prices down, China’s five biggest power companies, China Huaneng Corporation (Huaneng), China Datang Corporation (Datang), China Guodian Corporation, China Huadian Corporation (Huadian), and China Power Investment Corporation, known as the “big five,” are preparing plans to source power coal from foreign markets. Yesterday, the price for 5500 cal power coal in Qinghuangdao, China’s largest coal port, fell suddenly by 10% to close at 550 yuan per ton from over 600 yuan per ton last week.
The big five, jointly with Zhongneng Electric Power Industry Fuel Company (Zhongneng) and China Resources Power Holdings Company, are planning an overseas coal purchase fair. A source close to the big five said heads of fuel sectors of these companies might form a coordination group and that Zhongneng might then invite bids on behalf of all the companies.
Earlier, Datang bought 0.26 million tons of coal from Russia and Indonesia for the first time, and Huaneng bought 0.2 million tons from overseas countries. Huadian has also bought about 0.13 million tons overseas.
“Whatever the result, at least power companies are putting pressure on coal suppliers,” said a senior official of a power company to China Business News. This official also said the scheme for global purchasing was still only under discussion and might not be implemented.
Due to pricing disagreements, power companies placed no coal orders during the coal fair at the end of last year.
High Coal Inventory Continues
China’s coal exports totalled 3.66 million tons in January, 36.3% down over the same month last year. Coke and semi-coke exports reached 80,000 tons, plummeting 92% year on year. Due to weak demand led by slowdowns in domestic and overseas power, steel, and chemicals industries, a tight coal supply has become a surplus. Coal inventories in some of China’s major ports have steadily increased. Domestic coal prices are almost certain to decline.
Another reason for dropping coal prices is the continuing nationwide fall in power generation and consumption since last year. According to figures released by the China Electricity Council (CEC), in January 2009 power generation from power plants above designated size (i.e. all state-owned enterprises and those non-state-owned enterprises with an annual sales income over 5 million yuan) was 247.637 billion kwh, a slip of 12.30% year on year, while nationwide power consumption dropped by 12.88%. The decline was deepest in developed provinces in the east such as Guangdong and Zhejiang. CEC predicts the first and second quarter of the year will be the slowest time for power growth, and that negative growth may occur in the first half of the year.
“Pricing conflicts between power companies and coal suppliers is normal, but it’s extremely fierce this year. This is a consequence of the overall slowdown of power consumption. Power coal inventories are still way above the warning line,” said the power company official mentioned above. Power companies have enough coal on hand even though they placed no orders during the fair at the end of the year, meaning they’re not making full use of most of their generators.
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“Big Five” Power Firms Squeezing Coal Prices by Threatening Global Purchasing
CSC staff, Shanghai
18 February 2009
State-owned power companies and coal companies are at war over coal prices. To push prices down, China’s five biggest power companies, China Huaneng Corporation (Huaneng), China Datang Corporation (Datang), China Guodian Corporation, China Huadian Corporation (Huadian), and China Power Investment Corporation, known as the “big five,” are preparing plans to source power coal from foreign markets. Yesterday, the price for 5500 cal power coal in Qinghuangdao, China’s largest coal port, fell suddenly by 10% to close at 550 yuan per ton from over 600 yuan per ton last week.
The big five, jointly with Zhongneng Electric Power Industry Fuel Company (Zhongneng) and China Resources Power Holdings Company, are planning an overseas coal purchase fair. A source close to the big five said heads of fuel sectors of these companies might form a coordination group and that Zhongneng might then invite bids on behalf of all the companies.
Earlier, Datang bought 0.26 million tons of coal from Russia and Indonesia for the first time, and Huaneng bought 0.2 million tons from overseas countries. Huadian has also bought about 0.13 million tons overseas.
“Whatever the result, at least power companies are putting pressure on coal suppliers,” said a senior official of a power company to China Business News. This official also said the scheme for global purchasing was still only under discussion and might not be implemented.
Due to pricing disagreements, power companies placed no coal orders during the coal fair at the end of last year.
High Coal Inventory Continues
China’s coal exports totalled 3.66 million tons in January, 36.3% down over the same month last year. Coke and semi-coke exports reached 80,000 tons, plummeting 92% year on year. Due to weak demand led by slowdowns in domestic and overseas power, steel, and chemicals industries, a tight coal supply has become a surplus. Coal inventories in some of China’s major ports have steadily increased. Domestic coal prices are almost certain to decline.
Another reason for dropping coal prices is the continuing nationwide fall in power generation and consumption since last year. According to figures released by the China Electricity Council (CEC), in January 2009 power generation from power plants above designated size (i.e. all state-owned enterprises and those non-state-owned enterprises with an annual sales income over 5 million yuan) was 247.637 billion kwh, a slip of 12.30% year on year, while nationwide power consumption dropped by 12.88%. The decline was deepest in developed provinces in the east such as Guangdong and Zhejiang. CEC predicts the first and second quarter of the year will be the slowest time for power growth, and that negative growth may occur in the first half of the year.
“Pricing conflicts between power companies and coal suppliers is normal, but it’s extremely fierce this year. This is a consequence of the overall slowdown of power consumption. Power coal inventories are still way above the warning line,” said the power company official mentioned above. Power companies have enough coal on hand even though they placed no orders during the fair at the end of the year, meaning they’re not making full use of most of their generators.
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