A senior figure in the coal industry said recently that supply and demand for China's coal will be basically balanced in 2006 although there is a potential surplus in coal production.

Wu Chenghou, Executive Director of the Coal Sale and Transportation Association of China, said at the China Coal and Power Investment Summit 2006 late last week that as the growth of domestic demand for coal will slow in 2006, the contradiction between coal demand and supply that has been harassing the country over the last three years will be decreased.

According to estimates, China's demand for coal will be around 2.25 billion tons in 2006, including 2.17 billion tons for domestic demand and 80 million tons for export.

As China's coal production capacity will reach 2.26 billion tons in 2006, the supply will be a little more than demand. But Wu said the real coal output will be more.

The risk of a potential supply surplus is the major problem facing China's coal industry this year, he said.

Chinese coal enterprises should limit their output, improve coal quality and enhance coal supply structures to ensure profits, said Wu.

According to him, major coal producers such as northern China's Shanxi, Shaanxi, Shandong provinces and Inner Mongolian Autonomous Region have made it clear that they will limit their coal output in the next five years.

The fact that supply is a little more than demand is a good opportunity for the coal industry to integrate and upgrade, Wu acknowledged.

He said there is little room for the coal price to fall.

The current comparatively low price of coal has not only led to lower energy consumption efficiency but also hindered the development of new energies such as natural gas, said Feng Fei, Director-General of the Industrial Economics Research Department, the Development Research Center of the State Council.

To include the cost of production safety and environmental pollution into the price of coal is the basic direction of China's reform of the coal pricing system, said Feng.

However, also in the forum, Wang Yonggan, General Secretary of the China Electricity Council said that most contracts between coal producers and fire-powered generators this year have not been signed so far because of the higher coal price.

China eased control over the coal price at the end of 2005, which led to a impasse between coal producers who wanted to increase the price and fire-powered generators who refused to accept it.

Even the raised coal price and transportation cost in 2005 - about 26 yuan per ton of coal - has not been digested by power enterprises, not to say a higher price, said Wang.

The fundamental reason for the current deadlock is the contradiction between the market-oriented coal price and the electricity price which is still under government control, said Feng Fei.

The fundamental way to solve the problem hinges on whether the reform of separating power plants and power grids and establishing a market-oriented electricity pricing system could succeed, Feng said. Editem

Source: Xinhua