China Orders Power Firms to Replenish Coal as Prices Remain High
The NDRC has sought to guide the coal market to stable levels after prices spiked last year.
(Bloomberg) -- China ordered power companies to immediately replenish their coal stockpiles, in a move that will put more pressure on firms already facing import restraints and high prices for the fuel.
The National Development and Reform Commission, the country’s top economic planner, asked power generators to sign long-term supply contracts with domestic miners and build stockpiles to last at least 15 days, according to people with knowledge of the matter. The move was effective from Friday, when the commission summoned major coal and power suppliers for a close-door meeting, the people said.
Local officials will be held accountable for failing to meet the requirements, and all provinces will need to report long-term contract-signing progress, said the people, who requested anonymity as the meeting was private.
The NDRC did not immediately respond to a fax seeking comment.
The latest directive comes as President Xi Jinping is deepening China’s dependence on coal as soaring energy prices and geopolitical instability after Russia’s invasion of Ukraine threaten to hurt economic growth. The NDRC recently told major mining regions it wants to boost domestic output capacity by about 300 million tons as Beijing emphasizes energy security, seeking to cut dependence on pricey imports.
China is requiring miners to offer 80% of their production through long-term contracts at prices capped by a government-set benchmark, the NDRC said in a briefing following the meeting Friday. It said local officials must monitor all the transactions to prevent dealers cheating with dual contracts.
The NDRC has sought to guide the coal market to stable levels after prices spiked last year. The new government-set price band is 570-770 yuan ($90-$121) per ton, up from a previous range of 500-570 yuan.
Some energy providers may have sufficient supplies for the 15-day requirement. However, the mandate comes amid depleted inventories and transport constraints because of Covid-19 curbs, which have sent spot coal price higher. The average spot thermal coal transaction at northern ports rose to 1,707 yuan per ton, based on the data composed by the China Electricity Council.
That higher rate dragged contract negotiations between miners and power providers to a deadlock, said the people, which resulted in the NDRC setting the new mandate.
China’s worst pandemic resurgence has hit coastal shipping hubs. Tangshan Port, which accounts for about 60% of coal shipping to domestic plants, imposed traffic controls on city roads over the weekend, disrupting transport and trading activities.
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With assistance from Bloomberg