The State Council has approved a plan to liberalize the pricing mechanism for China's thermal coal, an official newspaper reported Thursday, and analysts said the move will boost the country's imports of coal.

An annual contract for coal signed between coal suppliers and thermal power plants will be replaced by longer-term contracts, according to a report citing unnamed industry insiders by China Securities Journal, a newspaper affiliated to the Xinhua News Agency. It also said the plan will be published as early as Friday.

Chinese coal producers and power companies are waiting for further details of the plan. Under the current mechanism, both sides hold an annual meeting, usually in December, organized by the National Development and Reform Commission (NDRC).

After negotiations, coal suppliers agree to sell certain quantities of coal to the power companies at preferential prices that are usually far below market prices.

"Large coal suppliers in Shanxi, Heilongjiang and Shandong provinces are considering raising their prices by 10-35 yuan ($1.6-5.6) per ton this year from last year's annual contract, but the price rise might not be accepted by power plants, which still have high inventories," Liu Dongna, a coal industry analyst at Shandong-based commodity consultancy Sublime China Information, told the Global Times Thursday.

Coal stockpiles at China's major power plants are enough for 21 days of consumption, according to Liu. Usually, the plants store coal for seven to 15 days of consumption.

"The high inventories are due to sluggish demand for electricity and larger purchases when the spot coal price was low," Li Ting, an analyst with the Beijing-based Distribution Productivity Promotion Center of China Commerce, told the Global Times Thursday.

But there are signs of recovery. China's electricity output grew by 7.4 percent year-on-year in November, the highest growth rate this year, according to the State Electricity Regulatory Commission. But Li is cautious about how much coal demand will recover, given the uncertainties in the Chinese economy.

In the long term, the market-oriented reform of coal prices could trigger an increase in import volumes, analysts said.

"When coal prices rebound amid China's economy recovery, domestic power plants that can no longer get cheaper coal under the annual contract will turn to imports," Liu said.

"Global coal miners will increase their focus on the Chinese market given the decreasing demand for coal in other markets," she said.

China's net imports of coal increased by 39.5 percent year-on-year to 217 million tons in the first 10 months of this year, according to data from the NDRC.

Global Times