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China coal giant calls for ‘minimum price’ to ease sector losses

China coal giant calls for 'minimum price' to ease sector lossesBEIJING: A leading Chinese coal producer has called on the government to set a minimum price for the fuel to ease losses and prevent power firms from taking advantage of a chronic supply glut.

The proposal reflects the government’s dilemma as it tries to curb consumption of polluting coal while bailing out a sector that employs 5.8 million people.

Mines are facing “huge difficulties” due to falling prices, with more than 70 percent suffering losses last year, Zhang Youxi, chairman of China’s third biggest coal producer, Datong Coal Mine Group, said in a proposal to parliament.

He said China should set a minimum price of 0.1-0.12 yuan per kilocalorie, which would put the price of benchmark 5,500 kcal coal at 550-660 yuan ($ 88-106) per tonne.

That would be higher than Qinhuangdao port prices of 485 yuan and benchmark Newcastle prices of around $ 67.50 a tonne.

“When prices temporarily surged in 2008 and 2011, the state stepped in with temporary price-restraining measures,” Zhang said. “Right now, prices have fallen below the cost of production at many enterprises, and they are still falling.”

China’s power sector is making a bad situation worse by negotiating further coal price cuts ahead of an expected drop in retail power tariffs, he added. Profits at top five state utilities rose 35 percent in 2014, Zhang said.

Copyright Reuters, 2015

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