[ferro-alloys.com]Chinese utility Huaneng has instructed its local units to avoid tapping the spot market for domestic coal because of high prices and stockpiles and has urged them to do more long-term deals, according to an internal notification by Huaneng sent on July 7 and seen by S&P Global Platts.

The company has urged its fellow utilities to refrain from buying Chinese 5,500 kcal/kg NAR spot cargoes above Yuan 600/mt ($85.50/mt) even though stockpiles at all Chinese utilities have climbed to 136 million mt as of July 5, up 1 million mt from end-June.

Huaneng would punish winners of Chinese domestic coal tenders who defaulted on their contracts with its units, the notification said.

"The utility should execute or increase tonnages in long-term contracts with Chinese miners while cutting spot purchases and ensuring stable coal supply ahead of the peak summer season for electricity use," the notification added.

Huaneng's move signaled a "hot" market for Chinese domestic coal this summer, sources said.

"As utilities are focused on buying Chinese coal, I am not hopeful of a relaxation of import restrictions in China," a south China-based trader said.

The recent sharp jump in Chinese domestic thermal coal prices, caused by the shift from seaborne to domestic coal because of a shortage of import quotas, has sparked a change in Chinese utilities' procurement plans as domestic thermal coal prices have moved into the "red zone," a source close to the matter said.

Government agency National Development Reform and Commission has signaled its intention to intervene in the market if the Qinhuangdao 5,500 kcal/kg NAR spot price trades above Yuan 600/mt FOB -- its red zone -- for a prolonged period of time, sources said.

Chinese domestic coal offers for 5,500 kcal/kg NAR grade inched Yuan 5 higher on the day to Yuan 600/mt FOB Qinhuangdao July 8.

The lack of thermal coal import quotas became widespread in southern China's Guangdong province and eastern China's Nantong ever since Qinhuangdao 5,500 kcal/kg NAR spot prices traded below Yuan 470/mt FOB May 4, the lower limit of the red zone, sources said.

Chinese domestic coal prices in the spot market were too expensive for utilities, causing them to cut spot procurement, the source close to the matter added.

"Chinese domestic coal prices were too expensive. Slower procurement can reduce them to a reasonable level for utilities," he said.

(S&P Global Platts)

• [Editor:王可]