NDRC looks to shake up coal pricing (2)

There are currently two channels for buyers to purchase coal in China. They can either buy on a spot market where prices are effected by real supply and demand pressures or via annual contracts coordinated by the NDRC and designed to ensure delivery of a certain amount of thermal coal to power producers at preferential rates to ease the financial burdens facing these companies.

"The existing contract pricing system has drawn much scorn from coal suppliers, many of whom are unwilling to fulfill their contracts when market prices are higher than contract prices," Liu Dongna, an analyst at the Shandong Province-based consultancy Sublime China Information Co, told the Global Times. "And now is a perfect time to really cancel the [annual contract] mechanism as coal prices have recently dropped to levels equal to, or less than, contract prices."

Yet, despite requests for a stronger link between thermal coal prices and downstream electricity prices, the NDRC made no mentions of such calls, according to the Shanghai Securities News.

"As coal prices are relatively low and power generators haven't suffered losses yet, there's no need to rush and tie the two prices together now. The NDRC can raise electricity prices at any time if coal prices again climb too high for power plants," Lin explained.

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