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Source: Global Times Global Times

Winter weather spikes coal prices

Published: 04 Jan 2010 13:02:01 PST

By Wang Xinyuan


Cold weather is driving coal prices higher and will lend the advantage in annual negotiations to suppliers, analysts said, predicting that the rising price will lead to more upstream mergers and acquisitions of power companies with coal suppliers.

Many of China's southern provinces, including Jiangsu, Hubei and Anhui, face power constraints, China Business News reported Monday. Current coal prices as of Monday grew between 4-9 percent over last week, said Huang Peilin, head of www.cctd.com.cn, the official coal transport and distribution information provider.

The Shanxi Datong reserve increased coal prices Monday by 20 percent from early December to 550 yuan ($80.53) per ton, while coal prices at the benchmark Qinhuangdao port went up more than 30 percent over the same period a year earlier, according to China Coal Information.

Cold weather resulted in rising power demand and coal consumption. Coal reserves in China's southern provinces are at a less than 10-day supply, compared with a normal inventory of 10-20 days, said Cao Yin, an energy and power sector analyst at Frost & Sullivan, a consulting firm.

The low inventory is due to unexpected pent-up power consumption following China's strong economic recovery. Electricity consumption grew 20-30 percent in December month-on-month from 6 percent in June, he said.

Many southern provinces rely on hydropower, but the dry winter season means they must use coal for power production, Huang said.

China's power companies used to import coal from overseas due to lower prices. However, the increasing demands of other economies are driving the international price closer to the domestic price, Cao said. Coal from Australia delivered to Guangdong ports stood at $100 per ton Monday, driving power companies back to domestic suppliers.

The cold weather has also hampered transportation by train and ship from coal reserves in China's midwest region to power plants in the east and coastal areas, Cao said.

The soaring prices could make it hard for power companies to strike a deal with coal suppliers for this year's annual contract, he said. Power companies and suppliers typically sign year-long contracts at less than the market price, but many suppliers have hesitated to sign such long contracts due to the fluctuation of coal prices, Cao remarked.

On the other hand, State power companies have difficulty in passing rising costs on to users, so they can't compromise either, which has led to demand often being only partially met almost every year, Cao said.

Cao said the situation is driving a trend for power companies to acquire coal suppliers.

Huaneng, one of China's largest listed power producers, announced Sunday that it would buy stakes in nine Chinese firms in Yunnan and Fujian provinces from Shandong Electric Power Corp and Shandong Luneng Development Group for a total of 8.625 billion yuan ($1.26 billion). Apart from adding production capacity, the deal will also bring Huaneng 1.8 billion tons in coal reserves.

China Huadian, another top-five power producer, acquired minority stakes in two coal miners based in Inner Mongolia in November.

If the CPI, a gauge of inflation, is high this year, electricity prices will not increase, as the government fears that it might boost inflation, Cao noted.

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