Spot Coal Prices Reach Record Highs in China Despite Government Control Efforts

by Jing Yang
Resource Investor

01/30/08

SHANGHAI (Interfax-China) -- Coal prices on China's domestic spot market have reached record highs this week due to widespread supply shortages and robust demand brought on by severe weather, despite government efforts to keep coal prices from rising higher.

Statistics released by the China Coal Transportation and Development Association today show that spot prices for coal on the country's domestic market reached a record RMB 645 ($89.58) to RMB 655 ($90.97) per tonne on Monday. Such prices represent a 17% increase on those recorded at the start of the year. In comparison, spot prices rose by 10% over the entire 2007 year.

The price hike has come despite a warning last week by the China Coal Transportation & Sale Society (CCTS), an organization with ties to the government, that domestic coal producers will have their coal production and selling rights suspended if they raise their prices during the current supply crisis.

"While the government could put a cap on the prices being asked for by domestic coal producers, the many coal traders, the ones who are behind this coal price spike, are harder to control," said a coal industry analyst who wished to remain anonymous.

China's coldest and snowiest winter in decades has disrupted railway transportation in many areas, especially in the country's northern coal production heartland of Shanxi Province. In turn, this has led to widespread coal inventory shortfalls at the country's power plants.

China's Transport Ministry ordered ports to temporarily stop loading coal for export last Friday in a bid to ease the domestic shortage, but ports are continuing to load coal destined for overseas under contracts sealed before the ban.

According to domestic media China Business News, the National Development and Reform Commission (NDRC) may ban coal exports in February and March to safeguard adequate coal and power supplies for the domestic market.

The sharp gains in China's spot coal prices have coincided with a surge in Australian coal prices, which were affected by production cuts caused by heavy rain in the country's northern state of Queensland.

(c) Interfax-China 2007. For more intelligence on Chinese metals and mining, contact David Harman in Hong Kong at david.harman@interfax-news.com or (852) 2537-2262.