Probing into a major coal-producing province: when will the coal price soar?

"Coal is priced at one price a day, from metallurgical coal to electric coal, which is beyond our expectations.

The reporter went to major coal-producing provinces a few days ago to investigate and found that large trucks were waiting in line to pull coal, and steam coal was "difficult to find" and other issues were being staged.

Coal prices and freight rates have risen

On December 18, a reporter from China Securities News drove on a trail in Heshun County, Jinzhong City, Shanxi Province.

Previously, in neighboring Lingshi County, Tiexin Coal Mine’s chairman Wang Jinbo told a reporter from China Securities News: “This year’s coking coal prices have started the ninth round of increases.

In fact, similar scenes have been staged in many places.

According to data released by the Shaanxi Yulin Coal Trading Center a few days ago, on December 17, a certain type of thermal coal from a mine in Yulin had a bidding price of 702 yuan per ton, a single increase of 107 yuan per ton.

On the one hand, coal prices have soared, and on the other hand, freight rates have soared.

"It used to be'car looking for people', now it's'people looking for cars'.

　　Why did the sharply lower coal prices in the first half of the year soar in the short term? CITIC Futures black researcher Li Shipeng said: "There are two reasons for this round of coal price increases: First, the contradiction between supply and demand broke out.
After the rapid price increase in the early period, policy interventions were few and the market was more optimistic; The second is supported by the general rise of black and non-ferrous products.
"Affected by various factors, the release of domestic coal production capacity is lower than the same period last year.
It is expected that Inner Mongolia will reduce production by about 100 million tons throughout the year.
In previous years, the gap between 30 million tons and 40 million tons was at a relatively high level.

　　After the new crown pneumonia epidemic has stabilized, coal mines are producing at full capacity, downstream demand has also risen, and the produced coal has been sold out.
By the end of October, most of the annual approved production capacity of the mine was completed.
Now the monthly output is relatively stable, but the downstream demand is strong, and the winter is the stage of downstream enterprises restocking the inventory, the demand release is relatively fast, leading to higher prices.

　　After entering October, the dry season in the south led to a decline in hydropower generation and an increase in thermal power demand.
"This year's heating and electricity consumption increase, which is also a factor in the rise of coal prices.
" Ma Xiaohong said.

　　Difficulty in fulfilling medium and long-term contracts

　　As coal prices are rising, the respective problems of coal mines and downstream companies have gradually become prominent.
Medium- and long-term contracts that should play the role of coal prices as "ballast stones" are facing performance difficulties.

　　In the first three quarters, the price of thermal coal was always low, and the price in April dropped to 470 yuan per ton.
During the investigation conducted by reporters from China Securities News, some coal company management bluntly stated that from March to August, the company's long-term thermal coal contract fulfillment rate averaged less than 60%.
When the market price of thermal coal is lower than the price of long-term contract coal, many power plants refuse to accept large-scale coal on the grounds of insufficient power.
In this context, the company develops new customers.
After the recent price increase of thermal coal, these power plants require companies to fulfill long-term contracts and supply power plants at long-term contract prices.

　　The Ningxia Development and Reform Commission's "Letter on the Evaluation of the Performance of Mid- and Long-term Coal Contracts in the Region in 2020" shows that among the 12 power generation companies reported by local statistics, 7 have quarterly compliance rates of more than 60%, and 7 have a half-yearly compliance rate of 70%.
%the above.

　　Difficulties in signing mid- and long-term coal contracts and the lack of binding force still exist.
The National Coal Economic Operation in the First 10 Months of 2020 issued by the China Coal Industry Association stated that downstream users will implement mid- and long-term coal contracts during the downward phase of coal prices.
The enthusiasm and initiative of coal companies have declined significantly.
Some companies ignore contract supervision requirements and refuse to implement medium- and long-term contracts, making it difficult to fulfill long-term contracts and causing serious problems to coal enterprises’ production and operation.
Due to the weak binding force of the contract, market prices fluctuate sharply during the period of imbalance between market supply and demand, and the role of medium and long-term coal contracts in stabilizing the market has failed.

　　Why is it difficult to perform medium and long-term contracts?

　　According to analysis, both the coal supplier and the demand side have the problem of arbitrarily suspending the contract.
There is a lack of institutional constraints and rigid assessments.
The rigid constraints of the contract cannot be reflected.
The volume and price of the contract are adjusted or suspended according to market fluctuations.
The accountability mechanism has not been established, and government supervision lacks basis and grasp.

　　"In recent years, the number of medium and long-term contracts for power companies has decreased year by year, which is inconsistent with the growth in demand for thermal coal.
This is an important reason for companies to increase market purchases.
" Ye Chun, deputy secretary general of the Fuel Branch of China Electric Power Union, believes that despite the relevant departments It has been repeatedly required to standardize contract signing behavior, clarify that medium and long-term coal contracts are annual long-term contracts, and repeatedly emphasize that medium and long-term contracts cannot be bundled.
In the actual implementation process, the phenomenon of annual long-term contract tying monthly and spot sales is quite common.
The annual long-term contract and the monthly contract reach 1:1 to 1:2, or even higher ratios.

　　In addition, the evaluation shows that some thermal power production companies have production equipment for heating units, and coal consumption is greatly affected by the season.
The purchase volume from April to October in the non-heating season is small, and the contract volume cannot be fulfilled.
The purchase volume during the heating season is large.
, Procurement in excess of contract volume, resulting in an uneven contract performance rate throughout the year.

　　The General Office of the National Development and Reform Commission recently issued the "Notice on Doing a Good Job in the Signing and Performance of Medium and Long-term Coal Contracts in 2021" to further improve the level of performance.
The three parties of production, transportation and demand shall, in accordance with the production plan and railway transportation capacity, subdivide the annual medium and long-term contracts into months under the premise of consensus.
The monthly performance rate shall not be less than 80%, and the quarterly and annual performance rate shall not be less than 90%.

　　"The effect of mid-to-long-term contract performance directly determines the extent of its role.
To this end, comprehensive measures need to be implemented in terms of strengthening supervision, policy support, and market-oriented guidance.
" Ye Chun suggested establishing a normalized credit management mechanism and implementing joint sanctions for dishonesty .
Introduce a market-based incentive mechanism.
Establish a mechanism that links the performance rate with incentive measures such as resource development, transportation capacity guarantee, and electricity price incentives, and give positive incentives to companies with high performance rates, and form a market environment that rewards the good and punishes the poor.

　　Introduced multiple measures to stabilize coal prices

　　In order to stabilize the market, relevant departments have recently introduced a number of measures to ensure supply and stabilize coal prices.

　　In terms of production areas, additional coal pipe tickets were issued to increase production.
In terms of railway transportation, coordinate the wagon plan of the railway bureau and give priority to ensuring the transportation of thermal coal for key enterprises.
Increase the number of long-term contracts signed next year to allow long-term contracts to further play the role of thermal coal prices as "ballast stones".

　　National Development and Reform Commission spokesperson Meng Wei said on December 16 that the current supply and demand of the coal market are generally balanced, and the coal supply in this winter and next spring is guaranteed.
In the future, we will increase the supply and adjust the demand to guide the market coal price to stabilize at a more reasonable level.
A few days ago, the China Coal Industry Association and the China Coal Transportation and Marketing Association jointly issued a proposal, advising companies to do a good job in "guaranteeing safety, ensuring supply, and stabilizing prices" during the peak winter period.

　　"The group held a special meeting to ensure supply.
Now it is daily scheduling and weekly summary, which is to ensure a reasonable output to ensure the supply of coal.
" Ma Xiaohong said.

　　In the coming 2021, how will the coal market perform?

　　Ma Xiaohong predicts that the coal price surge will ease in mid-January next year.
This is because coal companies will not have major plans to increase production by the end of 2020, but production will be released in an orderly and normal manner in January 2021.
Beginning in late January 2021, the southern plant will stop production for a holiday, and coal consumption and electricity demand will decline.

　　"In the near future, relevant departments have taken a number of measures to stabilize coal prices, and prices will not rise as quickly as they are now.
Taking into account factors such as environmental protection and safety inspections at the end of the year, supply will not increase much in the short term.
" Chairman Zhang Jiutang said.

　　Li Shipeng believes that although coal demand will decline after the Spring Festival in 2021, it will take a process to increase the supply.
It is expected that coal prices will fall before March 2021.

　　On December 1, Zhang Hong, a spokesperson for the China Coal Industry Association, said that China's economic recovery in 2021 will further accelerate, which will inevitably lead to a new round of demand for coal consumption.
It is expected that coal supply and demand should be in a tight balance in 2021.

Transfer from: Xinhua Finance