09 Dec 2020

China Issues Coal Buying Mandate Amid Supply Shortage, Price Gains

09 Dec 2020  by Reuters   

China's central state planner issued a mandate to coal buyers on Monday to sign medium and long-term contracts to ensure stable supplies next year, against the backdrop of recent gains in coal prices.

The National Development and Reform Commission (NDRC) said coal miners should provide at least 80 per cent of output to medium and long-term contracts, which are encouraged to be signed before the end of the year.

In an online statement, it also specified that the contracts, which range between three to five years, must cover 80 per cent of domestic coal consumption at power plants using imported coal and 75 per cent at power companies that only use domestic sources.

The amount of coal traded must reach at least 200,000 tonnes per contract for power generation, whereas coal used for metallurgical, construction materials, chemical and other industries must be at least 100,000 tonnes per contract, according to the NDRC.

China, the world's top coal importer, has been encouraging coal buying companies including power plants and steel makers to sign long-term contracts to stabilize prices, ensure market supply and help bolster struggling domestic coal miners.

The country has an informal coal import quota, as authorities instructed traders and downstream users to maintain total 2020 imports around the 2019 level.

In late November, China had also signed a deal to buy nearly $1.5 billion worth of thermal coal from top exporter Indonesia next year, with the Indonesian Coal Mining Association saying it hopes to increase coal exports to China to 200 million tonnes in 2021.

Seaborne coal and coal futures prices have increased recently, as imports have plunged sharply and domestic coal output capped by stringent safety inspections following several deadly incidents.

Coking coal prices on China's Dalian Commodity Exchange gained 12 per cent since November, while coke prices increased by nearly a fifth.

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