Shanxi Coking Coal Group Co. Ltd, China's largest metallurgical coal producer, has signed a deal with six state-owned steel mills following attempts by the National Development and Reform Commission to stabilize coal prices, the NDRC said Wednesday.
The push for the state-owned coal mining and steel mills -- Anshan Steel, Baosteel, Hebei Iron and Steel, Hunan Valin, Masteel and Shougang -- to sign such a contract was a reaction to a fast-rising met coal price which was not supported by market fundamentals, the NDRC said.
The pricing basis of the agreement would be set using a bilaterally agreed basis price with a price spread that would take into account the buyer and sellers' volume, logistics and payment terms, the NDRC said.
Such a pricing model did not appear to deviate from existing practice between state-owned coal mining companies and steel companies, sources said.
No volumes, or timeline, were indicated in the statement. Private mining companies and steelmakers were not involved in the agreement.
Most sources said that without any committed volumes or fixed price mechanism, this policy would not have much impact on calming the market.
Shanxi Premium Low Vol ex-wash plant prices have more than tripled year to date to Yuan 1,630/mt Wednesday from Yuan 520/mt on January 6.
This deal signed Wednesday should not be confused with a separate, annual met coal buyer-seller meeting held at Qinghuangdao which is focused on signing contract volume contracts for 2017. The meeting involves producers other than Shanxi Coking Coal Group Co., Ltd and other buyers as well.
For the Qinghuangdao meeting, 2017 volumes committed were said to have been decreased from 2016, a market source said, because volumes committed for 2016 were done in late 2015 with no prior knowledge that the NDRC would enact the 276 work day policy.
"Customers want to have more volumes but we do not have that much," one large miner said.
Shanxi Coking Coal Group Co. Ltd is the largest met coal producer in China with production volumes of close to 46 million mt, according to the company.
