Coal sector: coal price rises at coal contract summary meeting

BOC International

Tang Qian

The national coal contract summary meeting ended yesterday, and the information conveyed at the meeting showed that the domestic coal contract price rose generally. Strong demand, rising costs and transportation bottlenecks became the main factors for the rise of coal contract price in 2007.

The contract price of thermal coal increased by 25-30 yuan per metric ton on average (an increase of about 10%), higher than the average increase of 20-25 yuan per metric ton last year (an increase of 8%). The five major power groups in China have determined most of the coal supply in 2007. The rise in coal prices will help ease the pressure on coal enterprises in Shanxi Province caused by the collection of "three funds". The enterprises that benefit greatly from the rise in the contract price of power coal include Guoyang Xinneng (600348.SS/RMB 16.20, not rated) Datong Coal Industry (601001. SS/RMB 9.80, not rated) and Orchid scientific innovation (600123.SS/RMB 21.79, not rated).

The contract price of coking coal (used for steelmaking, production of coke and fertilizer) in 2007 increased by 10-30 yuan per metric ton, or 3-5%, in line with our expectations. Relevant beneficiary enterprises include Pingmei Tian'an (601666.SS/RMB 11.23, not rated) Kailuan Shares (600997.SS/RMB 9.18, not rated) and Xishan Coal Power (000983.SZ/RMB 10.48, not rated).

Relevant background: The NDRC cancelled the fixed price of coal at the last meeting, but limited the increase to 8%. This year, the National Development and Reform Commission encouraged the coal and electricity parties to sign one-year supply contracts through one-on-one negotiations, independently determine the transaction price, and change the way that the government centrally organizes the enterprises of the supply and demand parties to hold an order meeting. This will promote the integration of coal market price and spot price.