Beijing November 3 2022: China will extend a limit on thermal coal prices in 2023 and penalize suppliers who renege on contracts as it continues to expand use of the fuel to avoid any new energy crunch.
The National Development and Reform Commission, the country’s top economic planning body, has set a benchmark for annual contracts for next year at about 675 yuan ($92.85) a ton and has asked producers to finalize pacts by Nov. 25, according to a notice sent to companies and seen by Bloomberg News. Specific price caps for cargoes will fluctuate above and below the benchmark dependent on costs of production, transportation and other factors.
Since a 2021 squeeze on fuel supply that led to widespread electricity curbs, Beijing has been pressing coal miners to meet power producers’ needs under long-term contracts and to agree to prices that are far lower than spot market rates.
The new price cap is in line with an earlier target of 570 yuan to 770 yuan a ton for medium and long-term contracts and compares to domestic spot-traded prices that have surged 86% this year to 1,603 yuan as of last Friday, according to the China Electricity Council. Newcastle coal futures, a benchmark for global seaborne cargoes, touched a high of $465 a ton in September and traded Tuesday at $361 a ton.
The NDRC didn’t immediately respond to requests for comment on the plans.
Existing price controls have helped insulate China’s electricity generators from the worst of global spikes in energy prices and also helped efforts to tame a key inflationary pressure on the country’s economy. At the same time, coal producers have still benefited from retaining some exposure to domestic spot prices and posted bumper profits.
Under the NDRC’s revised policy, at least 80% of coal miners’ output is expected to be sold under contracts and supply to power plants will be prioritized over other industrial users. Miners that default on deliveries could be ordered to supply their original customer with three times the initial volume of coal as compensation, according to the notice.
Concerns in China over sufficient fuel supplies reflect the fact the nation’s electricity consumption is still rising, and the impact of a severe drought this summer that caused a new round of power disruptions and prompted companies including Toyota Motor Corp. and Contemporary Amperex Technology Co. to idle factories.
