In recent days, the State Council has issued new guidance on deepening the market-oriented reform of thermal coal. The policy marks a significant step in phasing out the dual-track system for coal pricing that had been in place since 2013. This move also includes implementing coal-electricity linkage and market-driven transportation reforms. However, the relationship between coal producers and power generation companies remains complex and intertwined.
Historically, to ease the financial burden on power plants, government agencies facilitated annual purchase and sales agreements—known as key coal contracts—between the coal and power sectors. These contracts ensured that coal companies would supply a certain amount of coal at discounted rates to power companies. Now, with the elimination of these key contracts, coal prices will be fully determined by market forces, reflecting actual supply and demand dynamics.
Guan Dali, an analyst at Zhongyu Information, suggests that the removal of the dual-track system could push coal prices higher, which is not ideal for power generation companies. For years, thermal power companies have struggled with profitability, and even with this year’s lower coal prices and adjusted electricity tariffs, many are still under pressure. A further rise in coal prices could make it even harder for them to recover financially.
Fang Huijuan, a securities affairs representative from Shen Huijuan (000543), noted that while the coal bridge mechanism may not bring substantial benefits to power companies, it represents a crucial step toward a more market-oriented energy sector.
From the perspective of coal industry insiders, key contract coal essentially functioned as a price floor for market coal. During the boom years of the coal industry, companies often complained that the prices set under these contracts were far below market levels, limiting their profit potential. However, in today’s market, these contracts provided some level of stability and guaranteed orders for coal companies. With the cancellation of the key contracts, coal firms now face greater uncertainty.
It is reported that due to the decline in coal prices this year, some power companies have found themselves in a situation where contracted coal prices are higher than current market prices. Without the support of the key contracts, coal companies fear that prices could continue to fall, squeezing their margins further.
According to Wan Xuezhi, an energy industry researcher at China Investment Advisors, in the short term, with coal prices still low, coal-fired power plants may prefer to secure coal through other means, leading to potential disputes or boycotts by power companies to protect their interests. However, in the long run, the integration of coal and electricity pricing based on market conditions is expected to benefit both sectors, allowing them to better manage their revenues according to real-time market trends.Expanded metal is a versatile and economical product made from a high-quality sheet of aluminum, steel, galvanized steel or stainless steel that is uniformly slit and stretched. This forms a diamond-shaped pattern of openings in the metal sheet.
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