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UPDATE 2-Chinese utilities urge regional govt to curb soaring coal prices
March 22, 2017 / 7:02 AM / 5 months ago

UPDATE 2-Chinese utilities urge regional govt to curb soaring coal prices

(Adds background on China's power market reform)

BEIJING, March 22 (Reuters) - China's top power groups are lobbying the local government in the western region of Ningxia to require their main thermal coal supplier to cut prices as they are bleeding cash due to surging coal costs and falling power prices, two sources said.

A glut of renewable and coal-fired power capacity in the Ningxia Autonomous Region has pushed down electricity prices, forcing utilities to sell their power at a discount after the government liberalised its power market. Prices in the region are the lowest in the country.

Seven of China's largest electricity generators including the Ningxia subdivision of China Datang Corp, China Guodian Corp, China Huadian Group, China Huaneng Group and Chinalco Ningxia Energy Co asked Ningxia regional authorities to force China's largest miner Shenhua Group Corp to lower its coal price to 260 yuan ($37.79) per tonne from 320 per tonne.

The companies submitted the proposal in a document, seen by Reuters, to the Ningxia government on March 17.

In the proposal, the companies also asked the government to temporarily suspend the region's new wholesale power trading market and increase the volume of coal to the region from Inner Mongolia.

The move follows a months-long rally in thermal coal prices in China, the world's top consumer of the fuel, amid fresh concerns about tighter supplies and robust demand even as winter draws to an end.

An official from the Ningxia Economic and Information Committee, which is handling the matter, told Reuters that he met with representatives from the companies on Tuesday.

He confirmed the authenticity of the proposal, but declined to be named because he is not authorised to speak to media.

The seven companies and Shenhua were not immediately available for comment.

"The cost of producing coal-fired electricity has reached 0.27 yuan per kWh, which is higher than our sales price," the seven companies said in the proposal. "Right now we are fully unprofitable."

Though this seems isolated to the region, the move illustrates the challenges for utilities, who are facing a double whammy of weak electricity prices and soaring raw material costs even as the peak demand season nears an end.

It also highlights the balancing act that regional authorities must perform between the interests of coal miners and utilities. Coal-fired power accounts for the majority of China's supplies.

The issue has also fuelled concerns about the country's ambition to reform its power market by liberalising power prices through the trading scheme.

Power company profitability is a major interest for the central government, which intervened last year to prevent a winter heating crisis when thermal coal prices soared to multi-year highs and forced mining cutbacks tightened supplies.

The Ningxia official said the local government is hesitant to intervene in the coal market again, chastened by last year's experiences. Earlier this month, the central government said it would not intervene as long as prices are stable, handing oversight to the regional governments.

"We will consider bringing together the power companies as well as coal producers to negotiate coal prices," the official said.

"But coal prices are not the only reason that these utilities are not profitable."

$1 = 6.8815 Chinese yuan renminbi Reporting by Meng Meng and Josephine Mason; Editing by Richard Pullin and Christian Schmollinger

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