Economy

Thermal coal price rises set to continue

By Du Juan (China Daily)
Updated: 2011-05-04 09:45

BEIJING - The price of thermal coal - the fuel used in power generation - in China will continue to rise in the second quarter because of a decline in imports and lower domestic supply, analysts said.

Coal is ready for transportation in a coal yard in Qinhuangdao, Hebei province. Coal imports for the first quarter are estimated to decline by roughly 40 percent year-on-year, according to the China National Coal Association.?[Photo/China Daily]

Ongoing maintenance work on the Datong-qinhuangdao coal transportation railway has resulted in a lower inventory for coal ports, which has exacerbated the pricing problem, said Dai Bing, a senior analyst at the online coal trading website coal.com.cn.

The average price of thermal coal at Qinhuangdao port is currently 815 yuan ($125) a ton, 5 percent higher than the price in the first quarter this year. The figure is the highest price for two and a half years, according to the China Coal Transportation and Distribution Association.

Dai said the increase in coal prices is an inevitable result of China's rapid economic development.

A short-term drop is possible, but in the long term, prices will remain high, he said.

Related readings:  Power-coal prices hit the highest point  Coal imports likely to decline as prices soar  High int'l prices unlikely to deter coal imports  China moves to keep thermal coal prices steady

China's coal imports for the first quarter are estimated to be 32.32 million tons, a decline of roughly 40 percent year-on-year, according to the China National Coal Association (CNCA).

Dai said growing demand from the power plants has also caused the price to increase because demand for power is always high in summer and in many provinces, plants need to stockpile enough of the fuel to avoid output shortages.

"Power shortages are caused by the unbalanced development of industry and the social economy," Dai said.

The number of high-energy-consuming companies is growing, but the construction of power plants and grids lags behind relatively. Thus, many companies still depend heavily on coal for their energy, which is another contributory factor in price increases.

Dai added that production shortfalls during mergers and acquisitions of coal mines in many provinces, allied to mining accidents, will also affect the domestic supply.

However, steel plants, which are huge consumers of coal, are currently not affected by the supply shortage and high prices.

"The shortage of power has not come yet, but it will definitely arrive earlier than last year, especially for steel makers," said Zhang Lin, a senior analyst at Beijing Lange Steel Information Research Center.

"The country's average daily steel production is 1.9 million tons, which requires a huge amount of power. Because of the national energy-saving policy, I think the limits on power consumption for steel makers will take effect from the beginning of the latter half of the year," she said.

The total coal reserve at power plants was 50.7 million tons at the end of March, a decline of 9.6 percent compared with the beginning of the year, according to the CNCA.

The country produced 792 million tons of coal in the first quarter, a rise of 8.3 percent year-on-year. Analysts said the summer thaw means that supplies from hydroelectricity will increase in the coming months, helping to ease the pressure on power plants.