The date December 27 is a milestone in the history of
China's market economy. The coal pricing and purchasing conference which had lasted for about 13 years finally closed its doors for good. The conference was the last commodity purchasing conference leftover from the planned economy of former days. On the last day of the conference, the National Development & Reform Commission (NDRC) stated that all prices of coal used in the generation of electricity would be decided by the market and the state would not intervene in pricing matters henceforth.
Currently in the domestic market, there exist two different prices for coal used in the generation of electricity - the planned price and the market price. The former is the lower of the two and decided by the state due to the use of this coal in important power plants which meet the nation's basic requirements. The latter is the normal market price. In the first three quarters of 2006, the average market coal price was around RMB 380 ($48.60) per ton. Meanwhile, the planned price was lower than the market price by on average RMB 80 ($10.23) i.e., by 21 percent.
The termination of planned pricing is widely considered to be good news for domestic coal suppliers. Many of them have declared that they have seen the dawn of a better future, due to their current expectations that the average price for coal used in the generation of electricity will increase following the cancellation of planned prices. For the major domestic coal mines, 18-25 percent of their coal products have been sold at planned prices up to the present. The future increase in profits of the coal mining companies is expected to be remarkable.
This year's coal supply in
China increased to 2.4 billion tons, up by nine percent year on year. And the coal demand will probably rise to 2.5 billion tons next year. Although the domestic coal supply increased, the coal demand for the purpose of generating electricity also increased in line with the development of the national economy. During the Jan-Nov 2006 period, the total volume of generated and sold electricity was 2.19 and 2.05 trillion kw•h, with a growth rate of 14.87 and 15.02 percent respectively year on year. Thus, it's rational to forecast that the average coal price of generating electricity will increase in 2007.
Currently, the right to set electricity prices is still controlled by the state. If the coal price goes up in future, then there will be an inevitable increase in electricity prices, according to the pricing system. It is reported that the state has been discussing the relaxation of its control of electricity pricing and the transfer of its pricing rights back to the market.
Due to the wide and great influence of the electricity price, the state is treading very carefully on the issue.
In any case, the average coal price is tending towards the current market price level and the electricity price is also expected to be adjusted accordingly soon. As major consumers of electricity, steelmakers will be greatly affected. Although the cost will go up, this is good news in favor of the steelmakers' desire to see a stabilization of steel prices.