How China Price Fight Impacts Coal ETF Performance

One of the world’s largest consumers of coal is helping related exchange traded funds (ETFs) give off a little heat.

China may increase the price of coal by 4% this year. This is because the government increased value-added taxes by coal producers this year to 17%, from 13% in 2008, reports Zhang Shidong for Bloomberg.

Huaneng Power International, China’s largest electricity provider, has backed off its bid to cut contract coal prices, however. The move is an effort to speed up talks between the country’s coal miners and power generators. Other major power firms have been in a price dispute for months with the coal miners, who have been pushing for an increase, reports Reuters.

As it stands, imported thermal coal is now cheaper than it is on the domestic market. Many coal-fired power plants in China saw losses last year, because they can’t pass the price increases to customers. About 60% of Huaneng’s coal is signed at contract prices with the country’s coal miners, which includes China Shenhua Group. The rest is bought in the spot market.

Tokyo Electric Power in Japan has also forecast more coal and oil consumption in 2009-2010, reports Reuters.

• Market Vectors Coal (KOL): down 4.2% year-to-date; up 29.2% in the last month; Shenhua Energy is 8.1%

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