Power struggle mounts over coal in China
CHINA - Cracks are deepening in China's rigid state-controlled resource price system. Unhappy with domestic coal suppliers for demanding price hikes, state-owned power producers are trying to bypass them by sourcing cheaper coal overseas.
Since storming out of annual negotiations with Chinese coal miners in December, the country's top five power producers, Huaneng, Datang, Guodian, Huadian and China Power, have refrained from buying coal domestically. With global commodity prices depressed and China's electricity usage declining, the power producers had been seeking price cuts. The country's coal suppliers want a price hike to offset higher costs, partially due to a heavier tax burden and an expected second-half rebound in power consumption.
The power producers moderated their position, asking to hold prices level. However, the National Development and Reform Commission, China's top economic planning agency, appears to be siding with the coal suppliers: According to a report last week from the Beijing-backed China Securities Journal, the NDRC was set to propose a 5% to 8% hike.
Now the Big Five are threatening to go straight to the global market instead.
Along with the smaller China Resources Power, they are in talks for big orders with foreign suppliers from Indonesia, Vietnam and Australia, according to a report in the state-run Shanghai Securities News. They plan to buy up to 1 million tons of coal from Australian producers at lower prices than on the domestic spot market. China Daily also cited a National Energy Administration official this week as encouraging coal-fired power plants to import coal.
The development puts pressure on China's coal producers. Just recently, coal prices at Qinghuangdao, ChinaÂ’s largest coal port, abruptly tumbled 10%, to 550 yuan ($80.56) per ton, after state media reports about the coal import talks. Domestic coal prices may also fall as port inventories continue to accumulate. It remains to be seen how Beijing will mediate, as both the power and coal factions are state-owned.
The Big Five had given up on an earlier demand for a price cut of 50 yuan ($7.31) per ton. A surge in electricity use and coal prices last year caused big deficits for power companies as Beijing was reluctant to raise electricity prices and risk popular discontent. The industry group China Electricity Council warned that China may face power shortages this year if the dispute is not resolved soon.
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