Itisreportedthattheannualcontractcoalnegotiationsarenearingitsendwhilethetotalvolumeofcontractsconcludedreached1.87bntonnesatthemoment,whichsurged56%YoYandrepresenteda7-yearhigh.However,nocontractpricehasbeeninkedyetbetweenthefivemegapowergroupswiththemajorcoalproducers.
InDecember2012,ChinasStateCouncilannouncedthecancellationofthelong-standinggovernment-ledkeycontractcoalpricenegotiations.Accordingtothedirective,theNDRCwillforbidthepriceinterventionforthermalcoal,whichmeansthecancellationofthe5%maximumgrowthfor2012contractpricesandRMB800/tonnepricecapfor5,500kcal/kgthermalcoalat9majorportsinkedinthenoticeonstrengtheningofthermalcoalpriceregulationannouncedon30Nov2011,leavingbuyersandsellerstonegotiatecontractcoalpricesdirectlystarting1January2013.Thatsaid,relevantregulatoryauthoritieswillcontinuetomonitortheprocesstoensureallpartieshonortheiragreements(quantity,pricingandcoalquality).Moreover,railwayallocationswillalsobewithdrawnwherebycoalplayerswillneedtonegotiatewiththeMinistryofRailway.
ThemovetowardsamoremarketbasedsystemforcoalpricingshouldbenefitthelistedcoalproducersgiventhedisappearanceofpolicyriskasnomorepriceinterventionbytheNDRCwhiletherealignmentofcontractandspotcoalpricesshouldbenefitcompanieswhichhadalargerexposuretocontractsales,givenpossibleASPimprovementduetotheslightpremiumofcurrentspotcoalpriceoverthecontractpriceconcludedlastyear.Itisrumouredthattheultimateoutcomeforthe2013contractpricenegotiationmightresulta3-5%YoYpricehike.