Term prices of thermal coal for 2010 in China are expected to rise about 8 percent from this year's levels, as demand for power has been roaring back due to steady economic recovery, analysts and industry officials said.
But higher coal prices may bring a tough year for power plants, in the absence of power tariff hikes or pricing scheme reforms.
Six analysts surveyed by Reuters expect term prices for thermal coal, used in power generation, to rise between 5 and 20 percent from this year's levels, with consensus around 8 percent.
I think an 8 to 10 percent rise would be reasonable, given the rapid climb in spot prices, as well as strong demand for coal and power, said Martin Wang, an analyst at Guotai Junan Securities in Hong Kong.
Utilities, however, are facing a tough year. They might still be able to make a profit, after they've phased out the inefficient power generators. But the profit margin would vary from company to company.
Coal miners and power plants were in a stalemate over this year's term prices for months, before some power plants quietly accepted price hikes demanded by coal miners, as power consumption recovered and spot coal prices strengthened.
Spot thermal coal prices in Qinhuangdao, the country's top coal shipping port, rose nearly 30 percent from mid-September, when prices started to steadily climb.
Coal with calorific value of 5,500 kcal/kg (NAR) was quoted in the range of 730 yuan to 750 yuan ($106.9 - $109.9) a tonne, according to the Qinhuangdao Seaborne Coal Market (www.cqcoal.com).
The current price is about 37 percent higher than 540 yuan a tonne, the benchmark free-on-board term price offered by Shenhua, China's top coal producer.
Meanwhile, China's power generation in November rose 26.9 percent on the year, the fastest growth in nearly 4 years, as industrial activities continued to accelerate and cold weather spurred heating demand. [ID:nTOE5B805K]
TOUGH YEAR AHEAD FOR UTILITIES
Power utilities, which just returned to profit this year due to lower coal prices, are again facing steep rises in production cost and coal miners with increasing negotiating power.
There is an increasing monopoly in the coal industry, as the consolidation is pushing forward. But the power sector is still segmented, said an executive at a large power generating group.
China's five major power generating groups, including the parents of GD Power Development Co Ltd (600795.SS), China Power International (2380.HK), Datang International Power Generation Co Ltd (0991.HK)(601991.SS), Huadian Power (1071.HK)(600027.SS) and Huaneng Power International (0902.HK)(600011.SS), generate nearly half of national output.
We can't do anything. If coal costs rise, we'll probably see sector-wise losses again, said the executive.
Beijing has cancelled the annual coal price negotiating conference and instead asked suppliers and users to complete deals within a month, while pledging to improve the power tariff pricing scheme and keep coal prices stable. [ID:nTOE5BE04K] ($1=6.827 Yuan)