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Rising coal prices trigger a chain reaction in upstream and downstream industries. Cost inversion in thermal power enterprises

Release date:2016-11-16 | Number of views:416

Recently, coal prices have significantly increased, causing a short-term reversal of the "seesaw" between the coal and electricity industries, which has had a significant impact on thermal power enterprises and large industrial users. Direct electricity trading cannot continue, and electricity costs have significantly increased. Industrial enterprises with a high proportion of electricity costs are facing a situation of stopping or reducing production, and their production willingness has decreased. The rise in coal prices has triggered a chain reaction between upstream and downstream industries

Since June 2015, when the Tibet Tibet Central Power Grid first achieved power transmission, the cumulative external power transmission of Tibet hydropower through the Qinghai Tibet AC/DC power grid project has exceeded 1 billion kilowatt hours. The Qinghai Tibet AC/DC power grid project, known as the "Power Sky Road", is currently a high altitude DC transmission project. The picture shows two staff members from State Grid Qinghai Maintenance Company patrolling within Haiyan County, Qinghai Province

The reporter learned from interviews in Beijing and Ningxia that in order to cope with a series of chain reactions and maintain stable development of the industrial economy, the government has intervened in the behavior of coal enterprises to significantly adjust prices in the short term, demanding reasonable control of the increase. The coal prices within the contract have increased by 15%, while the coal prices outside the contract have increased by 20%. However, even so, the power generation costs of thermal power enterprises still hang upside down. The series of impacts brought about by this round of coal price increase, as well as the future trend of coal prices, still need further observation

Some industry insiders believe that in the long run, coal prices remain low for a long time, causing coal companies to suffer extensive losses, which is clearly detrimental to the healthy development of coal companies. However, in the current context of excess coal production capacity, timely regulation of irrational increases in coal prices should also be carried out to avoid the impact of short-term surge in raw material prices on economic growth

On September 1st, Shenhua Ningxia Coal Group raised the coal price within the contract to 220 yuan/ton for 4500 kcal, while the coal price outside the contract was 237 yuan/ton for 4500 kcal. On October 18th, Shenhua Ningxia Coal Group sent a letter to thermal power enterprises, which put a lot of pressure on the latter. Starting from November 1st, the power coal price within the contracted quantity of power plants in the area was once again adjusted to 283.5 yuan/ton (with a calorific value of 4500 kcal), and the market price outside the contracted quantity was adjusted accordingly, with a provisional price of 300 yuan/ton (with a calorific value of 4500 kcal)

It is understood that the recent sharp rise in coal prices in the surrounding areas of Ningxia and even across the country has led to a continuous increase in commodity coal prices for all coal enterprises, resulting in the coal prices of Shenhua Ningxia Coal Group in Ningxia becoming a price depression. Meanwhile, Shenhua Ningxia Coal Group suffered a loss of 1.5 billion yuan from January to September. In addition, due to production capacity control, Shenhua Ningxia Coal Group's coal supply continues to be low. Therefore, the coal enterprise made a decision to increase prices

According to interviews with China Aluminum Ningxia Energy Group's Maliantai Power Plant and Ningxia Power Investment Xixia Thermal Power Plant, the current operating situation of Ningxia thermal power enterprises has sharply deteriorated, both of which are in a loss situation. The grid electricity price in Ningxia has long been the lowest in the country. If the price of coal is increased to 283.5 yuan/ton, the complete cost of power supply is 0.269 yuan/kWh. However, the current benchmark grid electricity price is 0.2595 yuan/kWh

Bao Wenlu, the director of the planning and operation department of China Aluminum Ningxia Energy Group's Maliantai Power Plant, told reporters: "Our power plant has run out of coal within the contracted quantity, which means we need to use 300 yuan/ton of coal. The coal price in January this year was 200 yuan/ton, a full 50% increase. Now if we generate electricity once, we will lose a penny. Moreover, during the heating season, the power plant cannot stop in any case, and we must generate electricity even if we bite our teeth

Zhang Jing, Chief Accountant of Ningxia Power Investment Xixia Thermal Power Co., Ltd., said, "After the rise in coal prices, coal accounted for 70% of the power generation cost of power plants. In the first nine months of this year, the power plants made a slight profit, but according to the current coal price situation, the losses of the power plants this year have become a foregone conclusion, with an estimated annual loss of around 45 million yuan."

The pressure is spreading to downstream enterprises

The rise in coal prices has driven chain price increases in coal related industries, causing production costs in other coal related and power related industries to rise, The pressure on large industrial users with higher electricity costs has sharply increased, exceeding the affordability of downstream coal related industries

The reporter learned in the interview that after coal companies sent letters to thermal power companies to increase prices, power plants also sent letters to large industrial users requesting the termination of direct electricity trading in November and December this year, and large industrial users can no longer enjoy the electricity price concessions of thermal power companies

Gu Wenhua, Deputy General Manager of Ningxia Hexing Metallurgical Refractory Materials Co., Ltd., introduced that the direct transaction electricity quantity signed between the power plant and them from September to December is 104.2 million kilowatt hours, with a price of about 4 cents cheaper per kilowatt hour. The power plant now requires the termination of the remaining 41.15 million kilowatt hours of direct trading electricity in November and December, which means the company will have to pay an additional 1.6 million yuan in electricity bills

There is no sign of a rise in coal prices this time, and our profits are basically the profits of power plants. Now that electricity prices have increased, and our production costs have also increased again, the pressure continues to spread to downstream users. Recently, we have had to raise product prices by 300 yuan per ton of silicon carbide, but 40% of users do not accept it. Our market has not expanded, "said Gu Wenhua

According to the Economic and Information Commission of Ningxia Hui Autonomous Region, the rise in coal prices has a greater impact on downstream enterprises, and the electricity load may decrease. Industrial enterprises with electricity costs accounting for over 40% are facing production stoppage or reduction, and the increase in electricity costs will cause more than 200 industrial enterprises to lose market competitiveness. The price increase has increased the profits of coal enterprises, but correspondingly weakened the driving force of industrial economic growth

Recently, 10 power generation companies in Ningxia jointly reported the adverse impact of the rapid rise in coal prices. With the coordination of relevant government departments, the price increase within the contract amount does not exceed 15%, and based on 220 yuan/ton, it has increased to 251 yuan/ton. The price increase beyond the contract quantity shall not exceed 20%, based on 237 yuan/ton, to 284 yuan/ton

The government guides the rational return of coal prices

Some power generation companies have reported that from the perspective of safeguarding people's livelihoods, stability, and the economy, the increase in coal prices should be slowed down. Their contract with the coal enterprise is signed once a year, and the enterprise must have the spirit of the contract. The price increase of coal enterprises should not be too arbitrary. It is too fast, too fierce, and has too much destructive power, which is not conducive to the stable development of the economy. Therefore, relevant government departments should timely regulate and control it. In addition, it is hoped that the coal electricity linkage mechanism can be implemented, and as coal prices rise, the grid benchmark electricity prices should also be adjusted

Cui Haishan, Director of the Electric Power Department of the Economic and Information Commission of the Autonomous Region, said that currently, the portion within the contract amount of the power plant is almost used up, and there is very little coal storage left in the power plant. So, under regulation, power plants still have to use high priced coal. Currently, coal prices are liberalized, but price increases also need to be combined with factors such as grid benchmark electricity prices, utilization hours of thermal power units, and thermal power as the main force for direct electricity trading, and cannot be separated from actual increases

The situation in Ningxia is only the tip of the iceberg in the national coal and electricity industry. Recently, Shenhua Group, middling coal Group, China Huadian Group and State Power Investment Group signed the first batch of medium and long-term contracts for the purchase and sale of thermal coal, and determined the basic price of 5500 kcal thermal coal at 535 yuan/ton

In the past, long-term contracts for electricity and coal were not priced quantitatively, but were still executed at a single price. The contract signed this time clarifies the pricing mechanism and adds content on performance supervision and breach of contract liability, "said Xu Kunlin, Deputy Secretary General of the Development and Reform Commission

The contract determines that the basic price of 5500 kcal of thermal coal is 535 yuan/ton, which will be adjusted accordingly based on market changes. Xu Kunlin said that in order to encourage both supply and demand parties to sign annual medium and long-term contracts, the country will prioritize supporting enterprises that sign medium and long-term contracts in the release of safe and efficient advanced production capacity. The railway company will also give priority to ensuring transportation capacity, creating good conditions for contract performance

The rapid rise in coal prices has shaken the determination of some regions and enterprises to reduce production capacity. The recent rapid rise in coal prices does not necessarily mean that overcapacity has been reduced and coal overcapacity has not changed. Xu Kunlin said that the current stage of basic balance between supply and demand is due to strict law enforcement and implementation of reduced production, which has controlled some production capacity. If this part of production capacity is fully released, there will soon be a situation of oversupply

Xu Kunlin said that China currently has sufficient production capacity reserves, and the 600 million tons of production capacity reserved through reduction has strong regulatory flexibility. In order to stabilize the expectations of coal enterprises and facilitate the production organization work of coal mines, we are studying the extension of the deadline for releasing advanced production capacity from the original to the end of this year until the end of the heating period this winter and spring. The next step is for relevant departments to study and establish a long-term mechanism for releasing advanced production capacity based on changes in supply and demand situation. It is said that recently, by releasing advanced production capacity and improving transportation capacity guarantee, port coal storage has significantly rebounded, The coal storage in the five ports around the Bohai Sea has rebounded to normal levels, and the coal storage in key power plants has reached the average level of the previous three years

On the basis of two consecutive years of declining coal demand, coal consumption continued to decline by 2.4% in the first nine months of this year. At present, the fundamentals of coal supply and demand are stable, and prices are rising irrationally without support. The determination to reduce coal production capacity will not waver, and the intensity cannot be weakened. "Xu Kunlin said that in the future, China's energy consumption intensity will decline, and there is little room for growth in coal market demand

He said that the next step in reducing production capacity should follow market laws, adopt market-oriented and legal methods, scientifically grasp the scale and pace of production capacity reduction, and ensure basic stability of the coal market