Some coal producers are securing better spot prices from power plants to offset expected losses on their contracts for future delivery, according to a recent media report.

Coal producers are facing large losses on their future delivery contracts with power plants following a government cap of 5 percent on any increases on last year's agreed prices.

"The cost of mining is pretty high with a deficit of 45 yuan ($7.11)  per ton," a manager at coal company Hebei Kailuan Group was quoted as saying by Economy and Nation Weekly, a magazine affiliated with Xinhua News Agency. "If we sign contracts according to the National Development and Reform Commission's (NDRC) latest requirement, we could only increase the price on contracted delivery by 15 yuan per ton, leaving us with a deficit of 30 yuan per ton."

To offset the losses, many coal companies in Anhui and Shanxi provinces are requiring power plants to agree to purchase spot coal at above market rates in return for signing future delivery contracts.

An example is Datong Coal Mining Group, which is requiring power plants to agree to purchase spot coal at 10 percent higher than the market price when they sign future delivery contracts, at a ratio of three tons under the spot agreement for every one ton under the future agreement.

Analysts have said the new price cap on future delivery coal contracts will push more coal producers to default on their delivery agreements this year.

"The price gap between spot and contract coal was more than 250 yuan per ton last year, and more than half the coal companies defaulted on their contract delivery agreements," Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, told the Global Times. "With the new price cap this year, coal companies are complaining about even more profits loss."

Liu Dongna, an analyst at Chem99, told the Global Times that a reduction in the amount of rail freight capacity allocated to coal this year will also exacerbate the problem.

"Last year, the average spot coal price increased by 20 to 30 percent, and this year will continue increasing at a faster pace," he said. "The reduced rail capacity allocation makes an increase in the contract default rate very likely."

On January 4, NDRC announced it was allocating rail capacity to transport 834.6 million tons of coal this year, down from last year's 932 million tons.