China Coal to cut coal price on rising supply expectations

07 November 2016

China National Coal Group Corp (ChinaCoal), China’s second-largest state-owned coal producer after Shenhua Group, will cut its thermal coal price by 10 yuan ($1.48) per tonne from Thursday, as it expects rising coal production to ease prices.

ChinaCoal expected overheated coal prices to cool after the government’s latest measures to speed up output hikes to alleviate the shortage, while coal shipments and inventories at ports and users have been rising.

The newspaper is owned by the National Development & Reform Commission (NDRC), the country’s economic watchdog. Industry sources said the cut will only be imposed for physical settlement based on the Bohai-Rim Steam-Coal Price Index.

The marginal cut is seen by industry sources as the first sign that coal producers may be falling into line with the NDRC, which has urged coal miners to sign long-term deals with utilities at a fixed price to ensure supplies and avoid a big hike in residential power costs.

Top coal miners including Shenhua have declined to reach an agreement with power generators to set the prices for their 2017 long-term supply contracts at prices below market levels.

China’s thermal coal prices on the Zhengzhou Commodity Exchange edged lower by 0.5 percent to 634.8 yuan a tonne.

However, open interest for the benchmark contract stood at 469,648 lots, not far off a record level hit on Monday. Traders had been expecting prices to go higher, but are waiting for clearer signals on any potential policy moves.

The unexpected coal supply shortage and recent price spike followed moves by the Chinese government to slash capacity and shut coal mines as part of its efforts to tackle overcapacity.

Source – Reuters