Energy

Coal costs a burning issue this winter

By Liu Yiyu (China Daily)
Updated: 2010-11-04 13:17

A worker takes samples of coal for quality tests from a conveyor belt at a coal depot in Shanghai. Coal prices have gained 7 percent since the start of September, when power stations started stockpiling coal for the winter. [Photo/Bloomberg]

BEIJING - China's coal prices are expected to rise further in the fourth quarter due to seasonal storage and the possibility of a colder-than-usual winter, analysts said.

Coal prices at Qinhuangdao port, a benchmark for China, rose to the highest since Feb 8 and 13 percent higher than the same time a year ago.

The price of power-station coal with an energy value of 5,500 kilocalories per kg rose 2.7 percent to between 755 yuan ($113) and 775 yuan a ton this week, according to data from the China Coal Transport and Distribution Association.

Coal prices have gained 7 percent since the start of September, when power stations started stockpiling fuel for the winter, data from the association showed.

"Coal prices will continue the upward momentum and are likely to rise as much as 10 percent by the end of this year," said industry analyst Song Zhichen from China Investment Consulting.

However, the increase may slow down by the end of this year, Song added.

The possibility that China is likely to experience severely low winter temperatures has also fueled the price surge.

Australia's thermal coal price, a benchmark for Asia, also remains high, climbing to $100.48 per ton this week, up over $1 from a week ago.

Coal inventories at Qinhuangdao port decreased by 6 percent to 7.1 million tons from a week ago as power producers stockpile enough fuel for 21 days for consumption, China International Capital Corp said in a research note.

China Shenhua Energy Co, the nation's biggest coal producer, posted an 11 percent increase in third quarter profit after the company increased production to benefit from higher prices, according to its statement on Wednesday.

According to the National Energy Administration (NEA), energy demand growth in the fourth quarter is expected to slow as government steps up efforts to save energy and cut emissions, and the overall energy demand in 2010 is stable.

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However, China's coal market saw supplies tighten recently and many participants believe the market is undersupplied in the quarter.

Meanwhile, coal producers are likely to pay between 3 and 5 percent on the actual selling price of coal as China expands its resource tax reform program, the Economic Information newspaper reported, citing unnamed sources.

"The country is changing its attitude toward the usage of natural resources as the government continues to sort out the price relations of resource products including coal, electricity, oil, gas, water and minerals," said Zhou Dadi, a researcher with the Energy Research Institute under the National Development and Reform Commission (NDRC). "For limited resources, the more you use, the more you should pay."

China plans to cap coal output during the 12th Five-Year Plan (2011-2015), and to establish mega-sized corporations as the industry consolidates, according to the NEA.

Meanwhile, the country is likely to limit annual coal production to between 3.6 and 3.8 billion tons in its next five-year development plan, according to China Coal Research Institute.