Thursday 9 April 2009
Power Plant-Coal Miners Spat Home Favours International Coal Prices
As negotiations with domestic coal companies stalemated, China’s five electric power companies are now importing coal from overseas. This, together with the rebound of the Chinese economy, is boosting prices for coal imported from Vietnam, Indonesia, and Australia, but not enough so as to make it uneconomical to continue imports.
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Power Plant-Coal Miners Spat Home Favours International Coal Prices
CSC staff, Shanghai
9 April 2009
As negotiations with domestic coal companies stalemated, China’s five electric power companies are now importing coal from overseas. This, together with the rebound of the Chinese economy, is boosting prices for coal imported from Vietnam, Indonesia, and Australia, but not enough so as to make it uneconomical to continue imports.
At the end of March, Vietnam’s coal prices had increased by 20% over December’s, and according to figures from globalCOAL, spot coal prices in Newcastle Port, Australia, surged by $1.09 per ton in the fourth week of March. Meanwhile, in Qinghuadao, China’s largest port for coal transportation, prices have remained basically unchanged for the past 30 days, and have even decreased a bit since the end of last year.
Due to the weak demand on the international market, orders from China have become very attractive to Vietnamese coal suppliers. Vietnam’s 2009 coal exports are estimated at 20.5 million tons, while the annual coal output will be about 40 million tons. The Vietnamese Treasury decided to cut its coal export tax ratio from 20% to 10% from February 15, 2009.
The sharp coal price hike in Vietnam is led by Vietnam’s expectation for strong demand in China, as well as the lack of coordination among Chinese buyers. Without a sourcing alliance, Chinese buyers can take no initiative during annual bidding. When China’s five power companies team up in negotiations with Australian coal suppliers, however, they can well exert their influence at the negotiation table.
Due to comparatively higher domestic coal prices, Chinese power companies are running to overseas markets. Despite import taxes, Vietnam’s coal, for example, is still 20 to 40 yuan cheaper per ton than coal of the same quality produced in Guizhou Province.
In Indonesia, the second largest seller of coal to China, PTKaltimPrimaCoal, that country’s largest coal company, has signed a long-term supply contract with a Chinese company, and will export one million tons of coal to China in the first year.
Many analysts believe the increase in international coal prices is led by Chinese power companies’ overseas coal sourcing. With present coal transactions on the international market under 900 million tons, tens of million tons of coal imported by Chinese companies will cause fluctuation on the international market.
In 2008, China’s power coal output reached nearly 1.5 billion tons, half of which was consumed by the five power companies. Importing coal will have little effect on China’s domestic coal market even if it increases by 50% over last year to more than 60 million tons. Taking freight and taxes into consideration, there is economy in transporting coal from Australia, Indonesia, and Vietnam to China’s Guangdong, Fujian, Guangxi, and Hainan Provinces, but not to Shanghai or parts north.
Due to different outlooks on economic trends, coal suppliers and power companies have been unable to reach agreement on coal prices. Coal suppliers hope to boost the long-term coal supply contract price by 50 yuan per ton, while power companies demand a price cut based on the current economic situation.
Now coal suppliers are also trying to form an alliance. In Shanxi, China’s major coal producing province, coal companies have formed a group, led by Datong Coal. Shenhua has also sought to ally with Datong Coal and China National Coal during the recent coal fair. Coal suppliers worry that once the resource tax is lifted to 4%, their costs will rise.
A senior official in China Resources Group Corporation says, “Now we buy coal from Australia at $60 per ton. Taking freight and taxes into account, the CIF price is still 20-30 yuan lower than Shenhua’s offer. So we prefer to import coal from other nations,” explaining why they are not anxious to sign supply contracts with domestic coal suppliers.
The stalemate between coal suppliers and power companies has dragged on for four months, and it is reported the State Council and China Electric Council are finally going to launch a scheme and find a compromise solution.
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