Decelerating Chinese economy slows coal price increases

Falling thermal coal prices are an ironic development for China.

Prices are expected to drop further this year along with a slowdown in China’s economic growth, said Wang Yu Jun, chief executive officer of state-run power producer China Resources Power Holdings Co Ltd.

He noted that said spot thermal coal prices in China have fallen sharply and the trend would continue as demand decreases.

"It is mainly because China's GDP growth has slowed substantially since the last quarter. We believe coal prices will fall this year," Wang said.

China’s GDP is expected to drop to 7.5% this year.

Wang pointed out that China's benchmark spot coal prices with a heating value of 5,500 kcal/kg have declined to US$121 per tonne from over US$127 at the end of 2011.

He believes that is China’s GDP slowdown is in line with government forecasts, this year's fall in coal prices “. . . will be rather big.”

Thermal coal prices jumped by 41% by the end of 2011 since the fourth quarter of 2009, Meanwhile, the government, worried about fuelling inflation and fanning public discontent, only approved a minimal rise in power tariffs.

China Resources Power fuel costs soared 29% year-on-year to HK$38 billion last year while the average tariff of its power plants only increase by a scant 3.%.