The four coal giants, including Shenhua Group, China National Coal Group, Yitai Group and Datong coal mine Group, would give a 10 yuan/t discount for key contract buyers like the nation’s top power groups, said one producer source with direct knowledge of the matter.
That would put the contract price at 500 yuan/t for key contract customers, down from 530 yuan/t originally proposed by those large coal miners, a level much close to the current spot prices at China’s northern ports.
On January 21, the Fenwei/Platts CCI1 index assessed domestic 5500 Kcal/kg NAR coal traded at Qinhuangdao port at 498 yuan/t, down 2 yuan/t from a week earlier.
"We have reached agreement with some key utilities to set the prices at 500 yuan/t," said one insider with one of the top coal firms. "This price would be applied to other utilities as well."
One source with a southern China-based large utility also disclosed that his company has agreed with the said price, noting it an acceptable level.
“It would be good to see the benchmark price agreed at 510 yuan/t before discount," said one source from a Shandong-based coal chemical plant, adding it would enable his company to make favorable profit in 2015.
Most coal miners hoped the benchmark price could be implemented through the whole year of 2015, should the dust settle, one producer source said.
However, many industry insiders expressed doubts on this. A Shandong-based importer said utility commitments would still depend on how the spot prices change in the coming year. "It could be short-lived, just like the 2014 benchmark price, which was agreed at 568 yuan/t but only implemented three months."
Market sources estimated the spot price would go even lower in China’s domestic market in the next two months, possibly down to as low as 470 yuan/t, mainly due to weak industrial power demand as the country celebrates its grandest festival – Lunar New Year.
If so, the coal giants would lose market shares if they continue to stick to the benchmark price. "I think they would rather give up this benchmark price than lose market share," said one trader based in Caofeidian port.
Earlier the day, market talks said the top four miners decided at a Tuesday meeting held by the China coal Transport and Distribution Association to set the 2015 benchmark price at 520 yuan/t for coal supplied to power plants.
This however was refuted by utility sources, which considered it unrealistic and unlikely to materialize, even if the government intervenes. "Utilities were aiming at 505 yuan/t for the 2015 contracts," one Beijing-based utility source said.