Electricity tariff hike to stimulate coal demand in China

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

29 Aug 2008

China is likely to further face tight coal supply in the second half of 2008, as the recent on-grid electricity tariff hike may further stimulate the domestic coal demand and the contractual coal price reached between coal suppliers and power plants will draw closer to the spot market price in 2009,

predicts Zhang Baocai, secretary of the board of Yanzhou Coal Mining Co., Ltd.
Zhang predicts that the coal price will continue to go up in spite of the recent interim policy of price capping on coal.
According to statistics, China's coal output amounted to 1.239 bln tons in H1, up 11.1 percent on year, while sale of commodity coal stood at 1.202 bln tons, up 10.7 percent. The net coal export reached 3.94 mln tons, which tensed the domestic coal supply. By the end of June, the total coal inventory had decreased by 5 percent or 7.51 mln tons from the beginning of 2008 to 142 mln tons.
Zhang holds that some thermal power producers, which suffered great loss from the fuel price hike and forced to suspend production earlier, are now resuming production along with the rise of on-grid electricity tariff.
Besides, the transport capacity will remain the bottleneck for effective coal supply. Gong Yunhua, an analyst with Guojin Securities, holds that the inadequacy of transport capacity resulted from fast growing demand on coal will last at least till 2011.
Insiders hold that the increasing affordability of power plants for power coal price after the recent on-grid electricity price hike and the growing demand on coal for this winter will push coal price higher to fill the gap of 220 yuan per ton between contractual and spot prices.

Source: Trading Markets