How China Plans to Support its Coal Industry

Countries are trying to get rid of coal. However, China still heavily relies on coal. So, it is hard if not impossible to get rid of it in the near future. The country plans to raise the benchmark price for long-term coal contracts in 2022 after a supply scare earlier this year. 

To avoid such problems, the National Development and Reform Commission drafted a plan regarding a benchmark rate for thermal coal. It drafted a plan to set the benchmark rate for coal at 700 yuan ($110) a ton for long-term contracts. The National Development and Reform Commission is seeking opinions on the plan, the people said. 

The country’s benchmark coal futures surged on the plan as it would be the first increase since contracts were introduced in 2017. The proposed rate is above historic norms in a market that long had an informal 600 yuan ceiling.

Coal and main findings

The agency also stipulated that large coal mines would have to sell their output on long-term deals. Also, all power plants must have those contracts in place for 100% of their domestic supply.

 The country’s biggest coal, as well as power companies, gathered in Rizhao for the National Coal Trade Fair. Usually, during such events contracts regarding coal are typically negotiated and signed. 

Thermal coal futures on the Zhengzhou Commodity Exchange jumped 6.6% on Friday. Prices fell in October, when fears of shortages prompted widespread power curtailments. The situation improved to a certain extent in recent weeks after miners responded to the government orders. They increased output to unprecedented levels. 

Still, higher coal prices will likely steeper electricity costs for industrial customers. In October, the country’s government gave utilities the ability to raise or lower their rates within a 20% band around benchmark prices.