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China plans to raise long-term coal prices in 2022 after squeeze

China plans to raise the benchmark price for long-term coal contracts in 2022 after a supply scare earlier this year, adding to inflationary pressures faced by manufacturers.

The National Development and Reform Commission will set the benchmark rate for thermal coal at 700 yuan ($110) a ton for long-term contracts, allowing prices to rise or fall within a 150 yuan band around it in monthly adjustments, Caixin reported, citing a draft plan from the agency.

It’s the first increase since the contracts were introduced in 2017, and while the proposed rate is well below price records set earlier this fall, it’s above historic norms in a market that long had an informal 600 yuan ceiling.

The NDRC also stipulated that large mines would have to sell their output on long-term deals, and all power plants must have those contracts in place for 100% of their domestic supply, according to the report. China’s biggest coal and power companies have all gathered in Rizhao, Shandong, this weekend for the National Coal Trade Fair, where such contracts are typically negotiated and signed.

Thermal coal futures on the Zhengzhou Commodity Exchange traded at 842 yuan a ton at 11:29 a.m. local time, having fallen by more than half from a record in October. The fuel had surged as fears of shortages prompted widespread power curtailments, although the crisis has eased after miners responded to government orders and lifted output to unprecedented levels.

Higher coal prices will likely mean steeper electricity costs for industrial customers after the government in October gave utilities the ability to raise or lower their rates within a 20% band around benchmark prices. (Bloomberg)

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