Rising coal prices are about to become a reality

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The coal and electricity negotiations, which have lasted for over three months, are coming to an end. An increase in coal prices seems to be an inevitable trend, and even power generation companies that have consistently refused to accept such price increases admit that this is now a reality. Guangdong Power is eyeing Vietnamese coal. It is reported that although the relevant authorities conducted intensive consultations in March among power and coal companies regarding the negotiations over key coal supply contracts for 2009, senior officials from power companies have recently indicated that the prices of such coal supplies are likely to be lower than those last year. However, authorities from the China Coal Transportation and Marketing Association stated that Shenhua and China National Coal Group have already signed over 70% of their coal sales contracts, and coal companies will not give up on the pricing of 540 yuan per ton for key thermal coal contracts. A report released recently by CICC states that Shenhua Huamei has already signed most of its coal sales contracts; even if coal companies offer an additional discount of 30 yuan, resulting in a contract price of 510 yuan per ton for 2009, this would still represent a increase of over 10% compared to last year’s contract price of around 460 yuan per ton. Han Yong, a coal industry analyst at CICC, noted that Shenhua’s target for coal sales this year is 220 million tons, and the contracts already signed ensure that 80% of this target will be met ； China Coal has also reached 77% of its target for this year in terms of signed contracts. The reporter also learned that among the local power generation companies in Guangdong, aside from central state-owned enterprises such as Huaneng and Datang, almost all of the others have signed contracts for price increases, with the increase amounting to around 11%, and the volume of such contracts has also risen. Guangdong Power Group also stated that, in order to ensure a steady supply of coal, it has prepared itself for rising coal prices and is importing coal from countries such as Vietnam and Australia to alleviate the pressure caused by rising domestic coal prices. “Import volumes will also see a significant increase compared to previous years, accounting for approximately 30% of the group’s coal demand. It is reported that other power generation companies in Guangdong are also in close contact with Vietnamese coal companies, with a strong intention to sign contracts. Coal imports will continue to rise. According to the statistics recorded by Guangzhou Customs, from January to February this year, a total of 2.595 million tons of coal were imported through Guangdong’s ports, representing a 4.6% increase compared with the same period last year. In February alone, 1.684 million tons of coal were imported, a 73% increase, setting a new record for monthly imports since 2008. Industry insiders reveal that Vietnam has become Guangdong’s main source of supply. More importantly, Vietnam **has decided to reduce the export tax rate on coal products from 20% to 10% starting February 5th; it is foreseeable that international coal imports will continue to rise steadily. Experts from the Guangdong Coal Transportation and Marketing Association say that this will put pressure on domestic coal prices in the short term, but in the medium to long term, the supply of domestic coal is much higher than that of imported coal, so it will not be greatly affected.