Chinese power giants look to international market for coal supply

BEIJING, CHINA - In the face of soaring coal prices from the Chinese coal companies, the Chinese power giants that have registered huge losses in 2008 are now starting to look to the international market for coal supply.

The newly formed Electric Coal Order Union, formed from China's five largest power groups, now has a newcomer, Chinese Resources Power Holdings Company Limited. Electric Coal Order Union is now considering buying electric coal from the international market, as coal prices offered by Chinese coal companies are much higher than coal prices seen in the global market.

Electric Coal Order Union's original five members are China Huaneng Group, Datang International Power Generation Company, Huadian Power International Corporation Limited, China Guodian Corporation and China Power Investment Corporation. Insiders say Chinese Resources Company won its membership because the company is more market-oriented, which means Chinese Resources Company is better at forecasting coal prices and the company has a more diversified industry mix.

According to news released by the Electric Coal Order Union, a large-scale electric coal exposition will be held soon, and many Chinese companies are actively contacting coal companies in Australia, Indonesia, Russia, Mongolia and North Korea for coal supply.

Australian coal prices now fluctuate between $75 and $80. In comparison, Datong Quality Mix, a variety of electric coal produced in China's coal-rich Shanxi province with the same calorific value, is priced at about $92 per ton.

In reference to the coal prices offered in signed coal contracts for the upcoming fiscal year in the Asian market, Australian coal exporters sell steam coal to Japanese companies at $70 and $80 US dollars per ton free-on-board, representing a price-drop of 45% from last year's contract price of $125 per ton.

A more specific example is that of Australian coal exporter Xstrata Coal, a subsidiary of Xstrata plc, which set its coal-export price for 2009 at $80 per ton, 50% lower than the company's contract price implemented in October of 2008, when the coal price was $155 per ton.