China Turns to Coal Imports

The drastic increase of coal price in China may force the country to import more coal from foreign countries.

“Though it is the low season for coal consumption, the drastic increase of coal prices in our country has made some of our customers import coal from foreign countries to meet their demand,” says Liu Bo, general manager of a coal imports company in China.

According to several coal dealers in China, coal prices saw a drastic increase at the beginning of May, forcing many thermal power plants to shut down parts of their generators due to the lack of coal. Thus, many plants began to import coal from overseas. Experts point out that the overseas coal is not expensive at all. The increase in the imported volume of coal means that conflicts between coal suppliers and consumers are heating up.

In 2009, China for the first time became a country with a larger amount of imported coal than exported coal. Many plants have already taken up importing coal from foreign countries as an important measure in fighting against the increasing domestic coal price. At the end of 2011, Queensland of Australia, an important source of coal, was hit by floods, which affected the supply of coal in the world. This led to the fast increase of coal prices in the Asian market. At that time, other countries’ coal price was higher than China’s domestic price.

Wang Siqiang, deputy director of the Comprehensive Affairs Department, State Administration of Energy, said that in the first quarter of this year the gap between domestic coal price and imported coal exceeded 100 yuan (USD 15.37) per ton, which would affect China’s imported coal.

However, the coal price in Qinhuangdao, Shandong, which could be an index to judge the whole country’s coal price, kept increasing after April, narrowing the gap between domestic coal price and imported coal price. According to the data from coal administration department of Qinhuangdao, the Bohai-Rim Steam-Coal Price Index has seen eight straight weeks of increase starting in April. In mid April this price index climbed to 820 yuan (USD 126.03) per ton, up 6.91% from April. This is also the highest percentage since the index was formed in September 2010.

The actions of coal suppliers conveys the possibility that coal prices will continue to increase. The vice president of a large coal company with the annual production of 50 million tons says that the prices of steel, cement and labor force are also increasing, which pushes up the cost of producing coal. The price of coal price is not likely to drop any time soon. This means that the shortage of electric power cannot be solved at this time.

This vice president also says that the coal price increase is not the only reason for the shortage of electric power. “The power plants are struggling with the coal suppliers and taking certain measures to protest against the increasing coal price. According to the report, five major electric power suppliers have already issued orders to limit the use of the market coal whose price is 200-300 yuan higher than the coal price based on contracts.

According to an insider, China Southern Power Grid, one of the five major electric power suppliers, encountered a shortage of coal in the middle of May. Some of its plants only had enough reserved coal to last less than ten days. Fortunately, the international coal price dropped during that period, allowing these electric power suppliers to turn to imported coal for help.

Experts say that the depressed imported coal in the first quarter of this year cannot make up for the fact that many areas of China have already been hit by the short supply of electric power. The increasing demand is the main factor for the increase of domestic coal price, which also leads to the increase of imported coal.

Xu Xu, an expert in the coal industry, predicts that the international coal price will continue the current trend of fluctuation this year. However, the domestic coal price will keep increasing this year. At some points the domestic coal price could be higher than the international price.

Prof. Xing Lei from the Coal Economics Institute of the Central University of Finance and Economics says that it is quite normal for electric power suppliers to seek cheaper coal from the overseas markets. That said, the current situation illustrates that the Chinese power suppliers’ preference of imported coal which is more expensive than the domestic coal relates to the struggle between coal consumers and coal suppliers.

“The electric power suppliers just want to show that they are not satisfied with the increasing domestic coal price and want to communicate this to the coal suppliers,” says Xing Lei.

“I just hope that this kind of struggle will not intensify the shortage of electric power, which will cause a great inconvenience for our country’s economic development and people’s lives,” says Xu Xu.