Sept. 25 – Last year, China overtook Japan to become the largest importer of thermal coal, effectively granting China great influence over global coal prices. A recent reform proposal regarding China’s coal pricing system suggests that policy makers are anticipating a continual decline in global coal prices, currently at a three-year low of US$90 a ton.
As thermal coal supplies over two-thirds of China’s energy requirements, it has taken slow and careful steps in reforming its coal prices. China is also the world’s largest coal producer, yet in recent years domestic mines have been unable to keep up with the pace of China’s burgeoning power demand. China instead has had to rely on overseas coal suppliers more heavily, already importing approximately 150 million tons since the beginning of this year.
Currently, coal miners and electricity generators must agree to produce volumes at prices below the market rate. The Chinese government has even told coal miners not to ask for higher prices, lest inflation increase.
A new reform, however, proposed by China’s National Development and Reform Commission (NDRC), will grant state-owned miners more freedom in the negotiation of coal prices with power generators.
“The NDRC is choosing to reform the coal price now as it expects the coal price to continue to decline, allowing it to be successful,” explains Fong. “Otherwise, if the coal price was to rebound, the NDRC could again be forced to intervene with price caps.”
This demonstrates once again the subtle maneuvering of China’s marketization and liberalization policies. Similarly, for example, China was able to successfully move towards greater liberalization of its gasoline and diesel prices when global oil prices were approaching a low of US$40 per barrel during the Global Financial Crisis.