China Shenhua Energy Company

Coal exchange gets the green light

PUBLISHED : Tuesday, 22 May, 2007, 12:00am
UPDATED : Tuesday, 22 May, 2007, 12:00am

The central government has given the green light for the establishment of a national coal exchange, liberalising one of the last remaining commodities whose price is still under state control.

The State Council, or cabinet, has approved the exchange to be set up in Taiyuan, capital of Shanxi, which accounts for a third of national proved coal reserves, according to the official Shanxi Youth Daily.

Trading volume was targeted to more than double to 500 million yuan from 215 million last year conducted through Taiyuan Coal Trading Market, a body to be replaced by the proposed exchange, it added.

Bulk contract coal prices, usually fixed during annual industry meetings, were supposed to be market-oriented in the past few years but Beijing had pressured involved parties to agree on state-guided price at times of protracted disagreements to ensure continued supply and contain inflation.

Beijing could withdraw transportation capacity guarantees for traders who failed to agree on prices.

Coal is among few commodities, which include fertiliser, natural gas, electricity and petroleum, whose prices are state-stipulated or guided.

Shanxi Coal Transportation and Distribution, which had arranged the industry meetings for buyers and sellers, would be the promoter of the exchange, according to a Shanxi Evening News report.

The exchange would be operated by a shareholding company owned by producers, traders, logistics firm and users, with a plan to spend one billion yuan to build an exchange hall and a conference and exhibition centre from September, it added.

The exchange initially will focus on spot market and cross-province trading and will be extended to futures and inter-region trading at a later stage.

Shanxi produces about 25 per cent of the nation's coal output and a third of the coking coal, used in steel smelting.

It also accounts for some 55 per cent of the national cross-province coal trading volume, and 80 per cent of national coking exports.

China had set up a coal exchange in Shanghai in 1992 but it was shut down 18 months later due to rampant speculation and trading irregularities.

It was too early to tell whether the Shanxi exchange would be more successful, said the spokesman of China Shenhua Energy, the listed flagship of the nation's largest coal producer.

'We are taking a wait-and-see attitude,' he said when asked if the company will become a shareholder of the proposed exchange and actively trade in it.

He said Shanxi only accounted for one-tenth of Shenhua Energy's coal output, as its main producing base is in Inner Mongolia autonomous region just north of Shanxi.

The absence of publicly-announced commitment from state monopoly Ministry of Railway to co-operate with the exchange was one concern, he added. The ministry allocates most of the national coal transportation capacity.