This year, the Chinese state planner, the National Development and Reform Commission (NDRC), has sought 100% of coal consumption via long-term contracts in the country.
Every year, to meet the increased coal demand for the peak winter months, NDRC urges market participants to sign long-term contracts for fuel supply.
In 2019, it had urged medium-to long-term contracts to make up 75% of supply deals to be signed by government and municipal authorities as well as power firms.
The latest proposal, of 100% coal supply via long-term contracts, has made spot prices in China go up to RMB 1,500/t ($232/t) while other-origin thermal coal prices from Indonesia, South Africa and even Australia have also shot up by $7-15/t towards the end of last week.
The Indonesian 5,800 GAR price has risen to $151/t, up 20% since 3 Sept’21, while South African RB1 prices have risen to $170/t, up 13% since 3 Sept’21.
Despite China’s ban on Australian coal imports, the sharp rise in Indonesian and South African coal prices have also fuelled a rally in Australian thermal coal prices, which have risen by 36% since 1 Sept’21.
China has been facing coal supply shortage this year amidst the Australian ban and domestic mines closure because of increased safety inspections to reduce fatal accidents.
Coal users impacted in China, India
Owing to the coal supply shortage, several factories in the country have been rationing power or curtailing production.
As many as 16 provinces, including industrial powerhouses Jiangsu, Zhejiang, Shaanxi, and Guangdong have expanded their curbs as several companies have reported the impact of power curbs in their filings with mainland stock exchanges.
Some power plants in China have already had to turn off their boilers to save costs, while manufacturing units continue to use energy judiciously.
The situation remains similar in India, as the sharp rise in thermal coal prices has already burnt pockets of importers in India.
The power plants are either struggling to get domestic coal or have reduced operations to avert buying imported coal at higher prices. The likelihood of a further rise in thermal coal prices is also seen weighing on the buying appetite in the coming months.
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