China Coal Shortage

“We want to sign the contracts, but the coal producers don’t,” said the unnamed vice general manager in Anhui Province on Dec. 22, with only three days of inventory left.


On Dec. 10, the National Development and Reform Commission (NDRC) published the “Notice Regarding Streamlining the Connections Among Coal Production, Transportation and Demand for 2011.” The notice required that the key power-coal contract price in 2011 be the same as in 2010, and coal producers “should not raise prices in any form.”

In the meantime, the NDRC also designed the guidance framework for inter-province railway transportation of coal. According to this framework, total railway coal transportation will reach 932 million tons in 2011, including 769 million tons of power coal.

The NDRC further required coal producers and users to finish signing contracts by Dec. 31, and all the signed contracts must be reported to the coal network trade system run by China Coal Trade and Distribution Association (CCTD).

However, as of Dec. 24, less than one week from the NDRC deadline, the total contracts signed were far short of targets. According to CCTD’s statistics, by noon of Dec. 24, the preliminary centralized contracts — referring to successful agreements for production and transportation — totaled 224 million tons. But it only accounted for 29% of the total railway transportation capacity allocated for coal power.

“The coal producers and users are not taking the NDRC’s mandate as seriously as before,”

The thermal-coal shortage has already emerged in several provinces in central and northern China.

In Henan Province, for example, as the coal-power inventory across the province was only at 2.56 million tons, far below the alert level of 3.5 million tons, the State Grid Electric Power of Henan announced on Dec. 16 that the “coal-power shortage is affecting the large-scale backbone public power plants and seriously damaging the supply of electricity throughout the province this winter.”


The coal-power shortage has some structural characteristics. On the national level, the coal-power inventory level is at 17 days, which is relatively safe. In provinces with little coal-power resources and limited transportation capacities, however, the shortage is acute.

Qian Pingfan, researcher at the Industry Economics Research Department of the Development Research Center of the State Council, says that the shortage has not been caused by limited transportation capacity, but by the disagreement on coal prices between coal producers and power plants.

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“The key coal-power contract prices are determined by the NDRC using the [consumer price index] and [producer price index] as benchmarks,” said a manager at a coal sales and transportation company.

The so-called “key coal-power contract price” refers to the contract price used by large, state-owned coal producers and power plants. As the coal prices in different regions vary under normal circumstances, the planned price is 100 to 200 yuan ($15 to $30) per ton lower than the market price.

Qian points out that the reason the NDRC has asked coal producers not to raise prices is that if the coal price is too high, power plants will “not be able to absorb the rising costs but to raise their output price — if the electricity price rises, the inflationary pressures will be even more severe.”

However, it is obvious that coal producers are not willing to sign contracts on NDRC terms. Instead, they are trying everything possible to work around the price limits.

In December 2009, the NDRC cancelled the 2010 conferences for the coal industry. It also proposed that, starting from 2010, coal producers and power plants would carry out the price negotiations entirely on their own. Such a development was seen as major progress in power coal-price reforms and streamlining.

http://www.marketwatch.com/story/china-price-fracas-leads-to-coal-shortage-2010-12-30