Coal miners cleared to revise contracts
The central government has allowed mainland coal producers to renegotiate their sales contracts signed with power companies this year, in an effort to avert a power crisis after many of them broke their agreements amid soaring prices.
Yanzhou Coal Mining chief financial officer Wu Yuxiang told analysts yesterday that the Hong Kong-listed firm had been advised by the National Development and Reform Commission (NDRC) that it could renegotiate its sales contracts.
The market had earlier speculated that coal producers would face a cap on price increases of future coal sales.
Mr Wu said the NDRC directive would affect only one-year contracts signed for delivery this year but which had not yet been delivered.
The directive would not affect spot market sales or next year's sales.
The August 3 directive will be limited to the main coal-producing provinces of Henan, Anhui, Shandong, Shanxi and Shaanxi. It will affect only coal sold to power firms.
Coal companies will be allowed to raise prices by up to 8 per cent under the revised terms.
'We cannot guarantee that we will be able to raise them by the maximum 8 per cent. The final prices will be subject to negotiations with customers,' Mr Wu said.
Ex-mine prices of Yanzhou's contracts signed early this year were priced at 185 yuan to 206 yuan a tonne, while prices have risen to between 300 yuan and 320 yuan, depending on the coal type.
The company has signed one-year sales contracts on 12 million tonnes, of which about 10 million tonnes were for the power sector. Just over four million tonnes of this amount have not been delivered.
Mr Wu estimated the 8 per cent maximum price increase would allow the company to raise the contract price by up to 20 yuan a tonne (tax inclusive), implying additional profit for the company of about 80 million yuan.
Although mainland coal prices are supposedly deregulated, the government had intervened in negotiations for this year's and last year's coal sales by providing guided price increase levels. This was because power firms lacked the freedom to set power tariffs.
Many coal producers have reneged on contracts after prices soared more than 33 per cent since the start of the year.
