China's state-owned power giant Huaneng Group said in a notice issued on July 7 that it will tighten the screw on spot purchases of domestic thermal coal, given the benchmark price has been rising rapidly to nearly 600 yuan/t at northern ports.
It said in the notice that while coal prices are rising at production areas and northern ports, the stock of the country's unified-dispatch power plants are growing steadily, which reached a new high of 136 million tonnes on July 5, up 1 million tonnes from end-June.
Not only coal supply should be ensured over the peak demand season in the summer, it is also necessary to prevent prices from moving up too quickly, the notice said.
For subsidiaries that have to build up inventories via spot purchases, it allowed them to buy spot coal if prices are quite low, but prohibited any purchases of high-priced cargoes.
It said almost all July-arrived spot cargoes were purchased with prices locked before the recent increases, but some winning bidders violated contracts by cutting down or refusing deliveries, or hyping up prices deliberately. "Relevant power plants should strictly deal with bidders' nonperformance by the book," the notice said.
While requiring reduction of spot purchases, it asked power plants to scale up the fulfillment rate of long-term contracts.
The group wants to send a signal that spot prices are increasing too wildly and need to be cooled down, which could probably prompt more power plants to follow the suit, some market players said.
"The higher the price stands after it crosses the 600-yuan/t mark, the higher the down risk could be," one Beijing-based trader said.
As of July 7, Fenwei CCI 5500 index have reached a year high of 597 yuan/t FOB, surging from the recent low of 469 yuan/t on April 30. The gauge has jumped 21 yuan/t since the beginning of July.
Huaneng Group invited tenders for a total 385,000 tonnes of thermal coal with calorific value from 3,000 Kcal/kg to 4,500 Kcal/kg on a NAR basis, with bidding expiring on July 9.
(Writing by Alex Guo Editing by Jessie Jia)
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