China's Power Plants Sign Coal Deals at Higher Prices (Update3)

Jan. 12 (Bloomberg) -- China's power plants and coal producers signed 1 billion metric tons of contracts for 2010 delivery ahead of a government deadline set to avoid supply disruptions in the world's biggest consumer of the fuel.

Prices under the agreements signed as of Jan. 10 rose an average 50 yuan ($7.32) a ton compared with last year's contracts, the China Coal Transport and Distribution Association said in a report today. That's a 9.1 percent increase from 2009, said Martin Wang, a coal analyst at Guotai Junan Securities.

The world's fastest-growing major economy previously faced coal supply disruptions when mining and power companies clashed on contract prices. Coal sellers and buyers should reach an agreement within 30 days, the National Development and Reform Commission, the country's top economic planner, said on Dec. 15.

The contracts were signed "pretty quickly,"Wang said by telephone from Hong Kong. "The power companies are taking the lead this time. If they wait, prices may increase even more."Contracts last year might have been signed at about 550 yuan a ton on average, he said.

Benchmark coal prices at China's Qinhuangdao port increased for the fourth week to a 14-month high of 805 yuan a ton, the association said yesterday. Prices have been rising on improved consumption because of the recovering economy, which may expand 9.4 percent this year, according to a survey of economists by Bloomberg News.

Prices also gained as heating demand surged during the country's worst winter in decades. China uses coal to generate about 80 percent of its electricity needs.

Output Growth

Shanxi Jincheng Anthracite Mining Group Co. and Shanxi Luan Mining Group Co. agreed to sell coal to China's five state power producers at prices 40 to 50 yuan a ton higher than a year earlier, the association said.

China Huaneng Group Corp., China Datang Corp., China Huadian Corp., China Guodian Corp. and China Power Investment Corp. are the nation's largest electricity producers.

Domestic coal prices are likely to stay elevated because of an industry consolidation that could limit output growth, Yu Yingxi, an analyst with Barclays Capital in Singapore, said in a report in November.

China may consume 3.4 billion tons of coal in 2009, an increase of between 4 percent and 6 percent from a year earlier, China Securities Journal said on Dec. 28, citing a forecast from the China National Coal Association.

"Coal imports into China in 2009 could reach more than 100 million metric tons, possibly rising to 200 million tons annually over the next few years, compared to a 41 million-ton import total in 2008,"BNP Paribas Fortis/VM Group said in a report.