Turning point in the price dispute over coal-fired power: Coal companies restrict production, maintain prices, and ensure payment collection
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Turning point in the battle over coal power prices: Coal companies limit production, ensure price stability, and secure payments http://china.chemnet.com February 23, 2009, 08:28:47 People’s Daily [Large Medium Small] At present, four companies—Huaneng Group, Datang Group, HuaDian Group, and GuangDian Group—have signed coal purchase agreements with overseas coal suppliers such as those in Russia and Indonesia, for amounts of around 200,000 tons, 260,000 tons, 130,000 tons, and over 200,000 tons respectively. At the same time, power companies are also negotiating a comprehensive coal purchase agreement with Australian coal producers, aiming to increase their purchases and bring the ex-ship price of Australian coal to 70 dollars per ton (for 5800 kcal of thermal coal). Calculations show that the price of imported coal purchased by the five major power generation groups is about 50 yuan per ton lower than the price of coal transported from Qinhuangdao to Guangzhou Port. Who will yield in the conflict over coal-fired power? Just after the Spring Festival and with the chill still in the air, Wu Yongping, chairman of Datong Coal Mining Group (hereinafter referred to as Datong Coal Group), is leading several vice presidents from the group on trips to regions such as North China, Shandong, and Guangdong to meet with clients. Such large-scale organized business trips are extremely rare at Datong Coal Group. “They all visited various power generation companies; these visits were aimed at finalizing the agreement for coal supply as soon as possible. ”Zhang Cheng (a pseudonym), manager of the Supply and Marketing Department at Tongmei Group, revealed the purpose of these concentrated business trips by senior executives. Recently, as power generation companies have been purchasing coal overseas on a frequent basis, some well-known domestic producers of thermal coal have become uneasy. In response to the challenge posed by these power generation companies, they have decided to adopt a more flexible approach and take proactive action. Hesitation over the 100-yuan difference: At the National Energy Work Conference that concluded on February 11, coal companies and power companies held opposing views – one side wanted a price increase of 50 yuan, while the other insisted on a decrease of 50 yuan – leaving the Energy Bureau unable to make a decision. Zhang Cheng told reporters that Tongmei Group’s total annual coal sales volume is 39 million tons. If the sales volume of thermal coal is 10 million tons, a rise of 50 yuan per ton would result in an additional revenue of 500 million yuan per year. Naturally, the group will not give up its demands for price increases. Other coal enterprises in Datong that are of medium size or larger are also actively seeking customers. As a renowned production base for thermal coal in our country, Datong supplies over 40% of the total thermal coal used across the nation. As the leading enterprise in the coal industry in Datong, the actions of Tongmei Group serve as a barometer for trends. Zhang Cheng also heard about this. Recently, in addition to the five major power generation groups that plan to purchase 1 million tons of 5,800 kcal thermal coal from Australia, several companies in Guangdong, including Guangdong Power Group, have reached annual coal supply agreements worth over 7 million tons with VINACOL, the Vietnamese Coal Corporation; Guangdong Power Group’s share of this amount is around 3 million tons. It is estimated that coal purchased overseas by power generation companies is about 50 yuan cheaper per ton compared to domestic coal used for power generation. In Zhang Cheng’s view, power generation companies’ purchase of coal overseas is a form of coercion against domestic coal enterprises. He felt somewhat helpless in the face of this “threat”. “The behavior of power generation companies is short-term in nature. China accounts for the largest share of global coal production; if these companies rely solely on imports, it will inevitably lead to a sharp rise in international coal prices, which in turn will push up domestic coal prices as well. ”Zhang Cheng shared his views with the reporters. However, for power companies, purchasing coal overseas clearly serves as a means to achieve significant results with minimal effort. Zhang Cheng said that some executives he visited reported from the front that Tongmei might compromise and lower the price by around 20 yuan, but not by 50 yuan. Just like the employees of Tongmei, Liu Erhu, a coal owner who operates mines in Datong, is also anxiously awaiting the outcome of the negotiations. The results of the negotiations and the final pricing are closely related to his own interests as well. Coal companies must limit production, ensure price stability, and guarantee cash inflows. Zhang Cheng said that if no action is taken, the group will have to face the possibility of reduced production and lower salaries. In fact, Shanxi, which had anticipated the pressure exerted on power generation companies, responded swiftly. On December 24, 2008, the Shanxi Provincial Coal Industry Bureau issued production plans for raw coal in January 2009 to the province’s key state-owned coal enterprises. The total planned production of raw coal by these enterprises was 18.15 million tons, which represented a reduction of over 30% compared to the same period last year. Relevant analysts point out that this move is primarily aimed at supporting the rapidly falling coal prices. Wang Shizhou, the vice mayor of Yangquan City, said in an interview with reporters that local coal mining enterprises should do three things at present: limit production, maintain prices, and ensure payment collection. However, opinions vary across different sectors regarding the measure of \"guaranteed price and production limits\". “Production restrictions and price stabilization measures cannot last. The heating season in the north is coming to an end. In addition, the price of thermal coal at major ports has dropped by around 5% as of February. ”An analyst at CITIC Securities said. “If power generation companies continue to purchase a large amount of coal from abroad, it will surely drive up prices in the international market; even with export controls in place, we will still increase the export of coal. ”Zhang Cheng said that as imports and exports of coal increase, shipping costs will also rise, and the move by power generation companies is only a short-term measure. Coal owner Liu Erhu told reporters that they are planning to reduce production; they have already given leave to over 400 workers, and now they only process coking coal as well as some high-quality coking coal. Data from the Qinhuangdao Port Authority show that the price of thermal coal is continuing to fall. The price of 6,000-kcal thermal coal at Qinhuangdao Port has dropped from 580 yuan per ton to 550 yuan per ton. The price of 5,500-kcal thermal coal has also dropped to around 550 yuan per ton. Meanwhile, the problem of a large number of workers unable to find jobs due to coal companies’ production cuts is also beginning to emerge. Hoping for a new policy balance: the challenge of reconciling market coal with planned electricity generation is difficult to solve. Recently, reporters learned that the **Energy Bureau is drafting new policies in an effort to alleviate the increasingly severe shortage of coal-fired power supply. Sources suggest that the new policies introduced by the Energy Bureau may benefit coal companies, reflecting a policy orientation in favor of such companies; however, the specific measures for providing these benefits are still under discussion. **Zhang Guobao, head of the National Energy Administration, also said at a recent national energy work conference that it is reasonable for coal companies to request a price increase of 50 yuan per ton. “Given that the domestic economy is under the impact of the financial crisis, it is not appropriate to raise electricity prices at this time. ”Lai Lihui, an analyst at Great Wall Securities, said that however, the possibility of adjusting the resource tax from a tax perspective at present is low. He believes the best way to achieve coordination is for coal companies to reduce prices or maintain last year’s contract prices. Yan Maosong, a renowned expert in the power sector, said in an interview with a reporter from China Business News that the conflict between coal-based power generation and other forms of power production is, at its core, a systemic issue. Yan Maosong believes that regarding the reform of power companies, so far only the separation of power generation units from the power grid has been implemented, while competitive bidding for electricity supply has not been pursued further. Power generation companies still operate according to the price list set by the National Development and Reform Commission; this is highly unreasonable in an era where power companies are engaged in diversified business activities. Furthermore, over the years, power companies have benefited from subsidies under the protection of the planned economy; at the same time, their employee costs have continued to rise, which is also a major reason for their losses. “Coal companies operate entirely under market economy principles; numerous large and small coal mines have sprung up, which puts pressure on the market price of coal. Additionally, **no subsidies are provided to these coal companies. ”Yan Maosong said. Coal and power companies, which are currently unable to resolve this conflict, have begun to acquire shares in each other’s companies in an effort to form a community of shared interests. “The five major power companies choose to purchase coal mines in order to produce their own coal, while coal companies acquire small power plants to generate electricity on their own, or these coal and power companies invest in each other’s businesses. On its own, this might have some effect, but it cannot completely resolve the conflict over coal-fired power. ”Wang Shouzhen, director of the Shanxi Provincial Coal Industry Bureau, said that establishing an energy price adjustment fund, setting a coal price index, raising electricity prices appropriately in line with the dynamics between coal and electricity prices, and providing appropriate subsidies to coal enterprises through the government could help overcome the difficulties caused by market fluctuations.
A tug-of-war between coal power and other energy sources; the coal trading market remains sluggish. 2009-02-23 China Chemical Information Network. Inventory levels are rising slowly; coal companies are losing their customers, and few ships are arriving at the ports. Another cold wave is approaching. On February 18, 2009, a heavy snowfall hit Qinhuangdao Port. The tug-of-war over coal-fired power remains stagnant. Su Guojun decided he could wait no longer. “I plan to start next week and go to regions in the south such as Guangdong, Zhejiang, and Jiangsu to see the demand for lump coal from glass factories and tile factories. ”Su Guojun told a reporter from Cai Liquan Zhou. Passengers exiting Qinhuangdao Railway Station can see a prominent billboard reading “Bada Coal”. Su Guojun is the manager of Badar Coal Co., Ltd. Speaking bluntly, he said that since the business with pulverized coal wasn’t working, they had to think of other ways. Although the profit per ton of lump coal is only 8–10 yuan, it’s still better than losing money in the pulverized coal business. The reason why Su Guojun was forced to find another route is that Badar Coal, a well-known distributor in Qinhuangdao, has not shipped any coal from the port for four months now, since last October. “The coal dealers I know are in a similar situation to Bada. ”Su Guojun said. From a distance, two cargo ships could be seen slowly approaching the coal terminal of the Qinhuangdao Port Branch. Inside the port, several cargo ships are also anchored, waiting to enter the dock to load coal. The taxi driver told reporters that there are fewer cargo ships than before. The price of thermal coal with a calorific value of 5,500 kcal at Qinhuangdao Port has dropped to 550 yuan per ton, whereas two weeks ago it was still above 600 yuan per ton. On February 19, the coal inventory at Qinhuangdao Port (the total of domestic and foreign trade inventories) reached the reasonable upper limit of 7.55 million tons. Snowflakes are flying. A climate of hesitation prevails at the Qinhuangdao coal port. The coal trading market is sluggish. On February 17, reporters visited the Qinhuangdao sea-based coal trading market. The atmosphere in the trading hall was rather quiet. “Coal traded in the market all belongs to market coal. ”Wang Kai, manager of the market operations department at the Qinhuangdao Sea Freight Coal Trading Market, told reporters. The coal available at Qinhuangdao Port is of two types. One type is coal supplied by large and medium-sized state-owned coal mines to various large power plants each year in accordance with **’s directives; this coal is referred to as coal for planned use, and its price is determined by **, usually being lower than the market price. The other type is coal that is purchased by intermediaries in the coal trading industry, stored in the port, and then sold to factories and enterprises that need coal. This type of coal is generally known as market coal, and its price is determined through market transactions. “In 2007, Qinhuangdao Port handled a total of 214 million tons of coal exports; according to incomplete statistics, at least 80 million tons of this amount was market coal. It is difficult to determine the total volume of market coal transactions in 2008 (some market coal was not traded on trading platforms). Transactions are shrinking now, with a significant decline. ” Data provided to our newspaper on February 17 by Qinhuangdao Port Co., Ltd., located near the maritime coal trading market, show that the volume of coal handled at the port (in terms of tons shipped out) in November and December 2008, and January 2009 was 12.63 million tons, 13.99 million tons, and 14.38 million tons respectively. Data for February obtained by the reporter from another reliable source shows that as of February 15, the coal handling volume at Qinhuangdao Port was 6.28 million tons. “Last year, before the international financial crisis, Qinhuangdao Port’s monthly throughput reached as high as 19–20 million tons. ”Wang Kai said. Qinhuangdao Port Co., Ltd. has not disclosed the latest data on the coal stock at Qinhuangdao Port. The reporter learned from reliable sources that as of February 14, the amount of coal stored at the Qinhuangdao port was 7.526 million tons. According to Wang Kai, the coal shipped from the port is mainly delivered to the coastal provinces. There are also those who go to the Northeast region. In places such as Dalian, Yingkou, and Dandong, the volume of freight transport in the northern region accounts for approximately 5%-10%. Of the coal shipped from Qinhuangdao Port, 75%-80% is used by power plants. Apart from coal used in power plants, it is also used in industries such as petrochemicals, steel, cement, printing and dyeing, textiles, ceramics, and papermaking. It is understood that Shanghai Petrochemical, a subsidiary of Sinopec, has just signed a coal contract for over 3 million tons for the whole year; Baosteel has also signed purchase contracts for several million tons of coal. “Most other small and medium-sized steel enterprises purchase from the market. ”Wang Kai said. Among the companies that purchase coal from Qinhuangdao Port are Conch Cement from the cement industry, JiuLong Paper and Kingpower Paper from the paper industry, as well as Jiangsu Sunshine from the textile industry. “\"A penalty of fifty to sixty yuan per ton of coal.\" Dada Coal, whose coal distribution activities are almost halted, faces the same problem as other distributors: having to engage in loss-making transactions. Su Guojun did some calculations for the journalists: The cost of coal purchased from coal mines in Shanxi is 220–230 yuan per ton; the short-distance transportation cost from the coal mines to the company’s coal storage facility is 60–70 yuan per ton. From there to Qinhuangdao Port, there is a railway transportation fee of 100 yuan per ton, as well as an energy fund charge of 28 yuan per ton. The port fee for entering Qinhuangdao Port (unloading fee) is 18.5 yuan per ton. In addition, there are various other fees amounting to several dozen yuan. Overall, the cost for the company to purchase coal is 520–530 yuan per ton, while the price at which the company sells coal to power plants (taking coal with 5,000 kcal of energy content as an example) is 465 yuan per ton. Calculating accordingly, the cost of compensation per ton of coal is about 50–60 yuan. Among the downstream customers of Bada Coal, cement plants account for 60%, power plants account for 20%, and local distributors account for 20%. “Since last September, most of the cement plant customers have been operating at a shut-down or semi-shut-down level. Power plants are currently undergoing unit maintenance, with half of their units under repair. This led to a sharp decrease in demand. ”Su Guojun said, “As is customary, power plants also carry out maintenance on their units at this time of year. The key point is that as social electricity demand decreases, power plants’ demand for coal inevitably drops as well.” ” Su Guojun revealed that some cement plants have begun to adopt a strategy of \"coal blending\" – reducing the amount of coal purchased from Qinhuangdao Port and instead relying more on locally sourced coal. The changes in coal shipping rates also reflect a downward trend in coal demand. Currently, the shipping cost per ton of coal from Qinhuangdao Port to Guangzhou is over 40 yuan, while it rises to over 180 yuan during peak periods. From Qinhuangdao Port to Shanghai, the shipping cost per ton of coal is around 20 yuan, with this figure reaching 156 yuan during peak times. Currently, the price of 5500 kcal coal at Qinhuangdao Port is around 550 yuan per ton, while the price of 5000 kcal coal is around 465 yuan per ton. Last November, during the peak period of coal backlog at ports, the amount reached a high of over 8.5 million tons (domestic trade inventory). Before the Spring Festival, the coal stock at Qinhuangdao Port dropped to 4.6–4.7 million tons (for domestic trade). “It is customary for customers to stock up on some coal before the festival for future use*. ”Su Guojun said, “At that time, it could be seen that there were also quite a number of ships arriving at the port to load coal.” ” Taking advantage of the brief rebound in coal prices ahead of this Spring Festival, Bada Coal cleared out all of its coal inventory. “Compared to the high price at purchase, it’s a big loss. But it’s the only thing that can be done. ”Su Guojun said. It is reported that there are quite a number of coal dealers who suffer losses. The tug-of-war over coal power: “There’s only one ship on February 19th” As for the temporary increase in demand for coal ahead of this year’s Spring Festival, Wang Kai explained that power plants wanted to stock up more coal in order to have a stronger position in their negotiations with coal companies in the coming year. For reasons related to their own operations, power generation companies are asking for lower prices for coal purchases, but coal companies refuse to agree. The current reality is that China’s five major power groups have yet to reach an agreement with coal companies regarding coal prices for 2009. Reports suggest that the five major groups are planning to purchase coal from overseas. There are also reports that individual thermal coal contracts have been signed. This puts considerable pressure on domestic coal companies. This situation has also had an impact on the coal prices at Qinhuangdao Port. Industry experts expect that if this deadlock persists, coal prices could continue to fall. As mentioned above, generally speaking, 75%-80% of the coal departing from Qinhuangdao Port is used by power plants. And the coal consumption for power generation by the five major power groups accounts for over 50% of that total. Such high demand cannot result in a complete halt to coal purchases just because negotiations with coal companies have not yet reached an agreement, even though these power companies do have some coal stockpiles. The reporter saw a “List of Key Users” posted on the bulletin board at the entrance of the Qinhuangdao sea freight coal trading market. The 20 companies on the list are all well-known power enterprises in China, with the five major power generation groups among them. The staff at the trading market did not reveal the exact date on which this list was posted, but judging from the slightly yellowed color of the paper, it is likely that more than a month has passed. This shows that power companies, including the five major power generation groups, have begun to purchase \"market coal\" from the market in recent times, as they are unable to reach an agreement with coal companies to obtain \"planned coal\" from them. “These power generation companies purchase a small amount of market coal from the market. ”Wang Kai said. Tan Wenlian is the deputy manager of Huaneng International Power Fuel Co., Ltd., and is responsible for purchasing and transporting most of the thermal coal needed by Huaneng’s thirteen power plants spread across the country from south to north. Huaneng Power is one of China’s largest listed power generation companies, and it is a major coal supplier to Qinhuangdao Port. Tan Wenlian told reporters that the company currently transports around 90,000 tons of coal per day from Qinhuangdao Port; this figure reached 150,000 tons during peak periods. In the past, the average daily output was also around 120,000 to 130,000 tons. Without signing coal contracts with coal companies, where does Huaneng International Power Fuel Co., Ltd. obtain this coal? Regarding this issue, Tan Wenlian’s explanation is that the company purchases items mainly through normal channels. In fact, amid the increasingly fierce market competition, some coal companies and certain long-term customers of power companies still maintain normal coal purchasing and selling activities prior to the signing of electricity coal contracts. This is what the reporter learned during interviews at Tianjin Port. On the morning of February 19, reporters visited the coal storage area of Shenhua Tianjin Coal Terminal Co., Ltd., located in the Nanzhan port area of Tianjin Port. The coal piles covered in snow look like small hills. Several large machines are working among the coal piles. The staff here told the reporters that these machines are used for performing “reverse stacking” tasks. On the side near the sea, some large machinery used for loading ships is shut down. A representative from Shenhua Tianjin Coal Terminal Co., Ltd. told reporters that although the group and some power company customers have not signed contracts for coal for electricity generation, the company is still supplying coal to these \"long-term customers\" at the \"agreed price\". The person did not reveal the specific “agreed price”. According to this person, in November and December 2008 as well as January 2009, the amount of coal shipped from the terminals operated by Shenhua Tianjin Coal Terminal Co., Ltd. was around 1.5 million tons each time, showing a relatively stable pattern. It is understood that Shenhua has two coal storage sites in the Nanzhou Port area of Tianjin Port. In addition to the coal wharf storage areas owned by Shenhua Tianjin Coal Terminal Co., Ltd., coal is also stored in the coal storage areas of Tianjin Port. A source from the Tianjin office of Shenhua Coal Marketing Company revealed that the ratio of coal shipped from the two aforementioned Shenhua coal storage sites is approximately 2:1. Based on the above ratios, it can be roughly estimated that the total amount of coal shipped by Shenhua from Tianjin Port in November and December 2008, as well as in January 2009, was around 2.2 million tons each. “On February 19th, only one ship entered the port to load coal. Recently, usually 2 to 3 ships arrive at the port daily to load coal. ”The aforementioned official from Shenhua Tianjin Coal Terminal Co., Ltd. revealed. Recovery may occur by the end of March. Those interviewed all agreed that weak demand for electricity and other services is the main reason behind the current downturn in the coal market. According to statistics from the China Electricity Council, in January 2009, power generation by factories and plants of a certain scale across the country was 247.637 billion kWh, a decrease of 12.30% on a year-on-year basis. Total electricity consumption across the country also declined by 12.88% year-on-year, with electricity use in developed eastern provinces such as Guangdong and Zhejiang dropping by more than 20% on a year-on-year basis. Most people regard the period after ** this year as the starting point for the coal market to emerge from its downturn. “At present, the process of reducing inventory at the power plant is still in progress, and it is estimated that a specific solution will be developed after ‘**’. ”Wang Kai said, “In the future, **intervention might be necessary; it’s difficult to rely solely on negotiations between coal and power generation sectors, as both sides have their own challenges.” ” Su Guojun believes that the **4-trillion-yuan investment plan to stimulate the economy is quite timely. But so far, the effects of these policies aimed at boosting domestic demand have not yet become apparent. He expects that by the end of March this year, the market may start to recover, and by August or September of this year, the impact of those 4 trillion in investment investments will likely reach its peak. “For a business deal to succeed, all aspects should see price reductions, while unnecessary extra costs should be cut. ”Su Guojun said. He told reporters that currently, coal companies enjoy excessive profits, which ultimately leads to continuous increases in coal prices at subsequent stages. The key is to rectify coal mines. Officials from Shenhua Tianjin Coal Terminal Co., Ltd. believe that with the implementation of policies to boost domestic demand and an increase in the rate of business resumption, the demand for electricity will also rise. At the same time, as summer arrives, electricity consumption by residents also increases. At that time, the coal market would gradually recover. Industry experts believe that as the peak period for coal use in winter passes, electricity coal prices may fall further, and negotiations between coal-fired power companies stuck in a deadlock could yield results after March this year.