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Hike in coal prices to have cascading effect

01
Feb '10
It is reported that the textile and apparel group 'Shenhua' and China Coal Group have signed the electricity coal contract. As negotiations of 2010 electricity coal contract have basically ended, the increase in electricity prices for those generated from coal has almost become a reality.

Under the agreement, the contract price of coal to generate electricity rises 5.6 percent to 570 Yuan per ton, or up 30 Yuan per ton over that of last year, while the contract price of electricity coal for many other power supply companies has increased about 30 ~ 50 Yuan per ton compared with 2009.

In accordance with coal and electricity price linkage mechanism, in a coal and electricity price linkage cycle (no less than 6 months in principle), if changes of average coal price from mine were 5 percent larger or lower than the previous cycle, the price should be adjusted on basis that power companies absorb 30 percent of the changes by themselves.

Based on this calculation, the current conditions are suitable for launching coal and electricity linkage mechanism. Some analysts predict that coal and electricity linkage mechanism will be started in the second half of this year.

In this way, electricity price will inevitably increase with the rise in coal price. For most exporting textile and apparel trade enterprises, it will once again increase business costs; as the rise of electricity price will increase operating costs of production directly and indirectly and in short have a cascading effect.

Fibre2fashion News Desk - China


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