China faces flooded coal market if production goes unchecked

In the first half of this year, supply and demand for coal in China was at equilibrium. Coal production expanded although the price remained relatively stable.

Pu Hongjiu, first Vice-Chairman of the China National Coal Association (CNCA), told a reporter that CNCA had recently sent seven teams to investigate 108 organizations across the 21 provinces that form part of the 6 big coal mining regions. They studied changes in the coal industry and made predictions for its long-term development. The investigation found that production, transportation and sales of raw coal in the first half of this year climbed by 8.3 percent, 3.4 percent and 4.5 percent respectively. National coal production has increased by 9.4 percent.

The average price of commercial coal in formerly state-owned coal enterprises is 302.13 yuan per ton, dropping 1.3 percent from last year's prices. The average price of coal used to generate electricity is 212.19 yuan per ton, a 0.6 percent price rise from the same period last year.

The results also show the supply of coal is increasing at an extraordinary rate. Fixed asset investment in coal has been growing for more than five years. As a result, there are a growing number of collieries and their combined output is increasing rapidly. The full scale of production will not become apparent for some years. An imbalance in the supply and demand of coal is inevitable if this investment is not checked.

Although the demand for coal continues to grow, supply threatens to far outweigh it. The demand for coal in electricity generation, construction and chemical engineering has already begun to fall. The amount of electricity produced this year increased greatly, but the speed at which it was produced actually fell by 1.2 percent. It is highly unlikely that the industry will ever again witness the extraordinary growth rates of the past.

In the second half of 2005, the price of coal began to decline on the international market, and is now roughly equal to what it is on the domestic market; in some instances it is even cheaper.

The profits of coal enterprises are still on the low side. In the first half of this year, national coal enterprises recorded a profit of 28.227 billion yuan after state subsidies, a 13.15 percent increase from the previous year. Formerly state-owned coal enterprises made a profit of 7.191 billion yuan, a slight increase of 0.11 percent on last years earnings.

In Pu Hongjiu's opinion, to avoid an imbalance in supply and demand and prevent a major downturn in the market, development and management must be improved; coal projects under construction must be abandoned and carefully inspected; and checks and ratifications for coal production must be reinforced.

By People's Daily Online