China pushes for long-term coal contracts to stabilize market

A tug boat pulls a coal barge along the Mahakam River in Samarinda, Indonesia, March 2, 2016. REUTERS/Beawiharta/File Photo

Chinese authorities have detailed measures to ensure the execution of medium- and long-term contracts between coal producers and buyers as the government seeks to avoid violent price fluctuations.

A guideline released by the country’s top economic planner and other parties specified that the contracts should make clear the amount of coal supply and price range, with clauses to allow for market-oriented price adjustments.

Illegal practices such as price manipulation and spreading misleading information will be punished, while those who honor the contracts will receive government policy support, according to the guideline.

The push for medium and long-term contracts came as a supply crunch in the industry, which is partly due to a government capacity-cutting campaign, has driven an unexpected surge in coal prices.

During the past two months, several top-level meetings have been called by the National Development and Reform Commission to seek increased supply to stabilize the market.

Authorities have pledged to ensure market supply without weakening capacity-cutting efforts with plans to relax the limit on production days for efficient coal producers.

Major coal miners such as Shenhua Group and China National Coal Group Corp. last month inked long-term contracts with thermal power conglomerates, with prices anchored at 535 yuan per tonne.

Thanks to these efforts, prices are showing signs of cooling. The Bohai-Rim Steam-Coal Price Index, a gauge of coal prices in northern China’s major ports, retreated to 599 yuan per tonne (86.8 U.S. dollars) this week, the fourth consecutive weekly decline, although still considerably higher than the beginning of the year.

At the National Coal Trade Fair on Thursday, NDRC deputy head Lian Weiliang said prices will gradually return to “reasonable” levels as China has an “absolute guarantee” over supply.

China is the world’s largest consumer of coal. The industry has long been plagued by overcapacity and has felt the pinch over the past two years as the economy cooled and demand fell.

The country plans to downsize coal capacity by half a billion tonnes in the next few years.
Source: Xinhua



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