Oil Report

UPDATE 1-China faces thermal coal supply challenge -NDRC

BEIJING, April 29 (Reuters) - China is struggling to ensure steady fuel supplies to thermal power producers, because the price they pay for coal is not fully in line with market prices, the country’s top energy policy maker said on Tuesday. There are still structural problems and supply tightness for coal and power in several parts of the country, the National Development and Reform Commission said in a statement.

Hotter-than-usual weather is expected this summer as is lower-than-average rainfall, the statement said. This will strain thermal power plants by boosting use of energy-intensive air conditioning and cutting available hydropower resources.

China said recently it faces electricity shortages of up to 10 gigawatts this summer, and its power plants are struggling to turn a profit because margins are squeezed between low state-set power prices and soaring coal markets.

Beijing said in March it would not raise tariffs in the short term, as it battles inflation which is running at its highest level in over a decade.

In the second and third quarters, however, hotter weather and Olympic demand -- combined with a mine safety campaign and soaring international coal prices -- will put coal and power production under pressure, the NDRC said.

The statement called for an increase in coal shipments to the Beijing-Tianjin-Tangshan region and central China, and for firms to ensure normal coal and power supply during the Olympics.

It also said China should improve monitoring of coal and power supply and demand, and boost coordination between different departments.

Shares in Chinese power producers jumped on Tuesday after state media reported that the NDRC may submit a proposal to the cabinet within days, seeking assistance for power-generating firms squeezed by soaring coal costs and fixed power rates.

Officials from coal mines, power firms, the electricity regulator and some industry bodies were recently convened by the National Development and Reform Commission in a failed effort to forge a compromise solution, the China Business News said. (Reporting by Jim Bai, Writing by Emma Graham-Harrison; Editing by Anne Marie Roantree)