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Spot prices have hit a four-year low, and Chinese coal buyers are trying to avoid contracts.

Three sources familiar with the situation said that Chinese coal buyers were trying to renegotiate contracts for long-term purchases, aiming to get better deals on spot markets where prices have fallen to four-year lows. This is adding to the pressure in China's cash-strapped sector.

Li Wei, Chairman of Shandong Energy Group (one of China's largest government-owned miners), said in a written statement that the spot market price has fallen below what was previously agreed upon.

He said that this "puts pressure on contract fulfillment" in a field where approximately half of the miners operate in the negative.

According to the Bohai-Rim Bay Thermal Coal Price Index, the domestic price of China's medium-grade coal with a 5,500 kcal/kg rating was 676 Yuan ($92.31), the lowest price since March 2021.

Many end-users in China are reluctant to fulfill their long-term agreements, said a trader based in China who declined to identify himself due to the company's policy.

A coal-buying employee at an industrial company said that contracts with the firm would be likely renegotiated, but "if we can't reach an agreement we may have to delay the shipment."

China's coal industry has been hit by a warmter than usual winter, which curbed the heating demand. This was coupled with an oversupply on the domestic market. Two industry groups called for a limit to output and imports in February.

Sources say that buyers are sticking to contracts with domestic coal miners. Import term agreements, which account for a small part of China's supply, appear to be unaffected.

China imported 542,7 million tons of coal, a record.

The trader explained that power plants in China typically sign long-term coal contracts covering 20-50% of the total coal they need, and buy the remainder on the spot market.

The China Coal Transportation and Distribution Association (a trade association) announced on April 9 that the relevant government departments would be stepping in to guarantee the fulfillment of long-term agreements.

The Chinese trader stated that this would improve contract compliance to a certain extent.

The short-term impact on prices will be minimal. The demand is too low."

(source: Reuters)