The long-awaited coal pricing mechanism for 2022 long-term contracts has been unveiled, according to a draft plan issued at the National Coal Trade Fair held on December 3.
The draft, made by the National Development and Reform Commission (NDRC), said the framework of a “benchmark price +floating range” is retained, but the benchmark price increases by 31% from the previous 535 yuan/t to 700 yuan/t, FOB northern transfer ports with VAT, basis 5,500 Kcal/kg NAR. The contract price would be adjusted every month and is allowed to fluctuate between 550 yuan/t and 850 yuan/t.
The new pricing mechanism has not only improved the benchmark price from 535 yuan/t to 700 yuan/t, but also allowed a bigger floating range than the existing one of 470-600 yuan/t.
The coal-based electricity tariff will be linked to the coal price. When the coal price stands above 700 yuan/t, every 30 yuan/t increase will lead to a lift of 0.01 yuan/KWh in the power tariff.
The draft said the scope of the 2022 coal long-term contract signing is further expanded. Coal producers with an annual capacity of 300,000 tonnes per year and above were, in principle, included in the scope of signing.
On the demand side, it is required that 100% of coal used by power and heat enterprises, except for coal imports, should be supplied through long-term contracts. This means the coverage of term contracts has expanded and many small plants will be benefited, but the non-power end users without signing term contracts may find it harder to purchase spot coal next year because of lower supplies.
The methodology to figure out the contract price is unchanged. The current month contract price = [{last BSPI index of the last month + last CCTD 5500 Composite Index of the last month + last CECI Composite index of the last month)/3] × 50% + 535 * 0.5 (now this 535 has changed into 700)
In a scenario based on current indexes, the calculative result follows the following equitation: (767+946+987)/3×50%+700*0.5=800. If the term contract price stands at 800 yuan/t, power plants’ profit margins can be guaranteed.
It has to be said that power plants are allowed to pass part of costs to the downstream users, which also helped power plants to ease their cost burdens and guarantee power supply.
Looking again at the formulation, it can be noticed that the price change, either rise or fall, will much lag behind the spot price, given there is a 700*0.5 at the bottom there.
Note: This article has been exchanged under the article exchange agreement between CoalMint and Sxcoal.
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