China to face 100 mln ton coal shortage in 2010 due to policy adjustments

China will face a 100 million ton coal shortage in 2010 due to policy adjustments in the coal industry in recent years, according to a report released by the China Coal Trade & Development Association (CCTDA) on Tuesday.

China's coal demand will reach 3.01 billion tons in 2010, and the shortage may reach 100 million tons, according to the report. However, if the country's economic growth slows down, the shortage will not be as acute.

According to the report, policies that will help create a shortage include pressure to make coal companies safer, the reduction of new coal exploration activities, increasing entry requirements into the coal industry and increased imports of coal as opposed to domestic production.

China has put a lot of pressure on coal companies in recent years to improve safety, especially on small mines, as China has the most coal mining accidents in the world. The State Administration of Coal Mine Safety (SACMS) announced as part of its three-year plan that it would shut down 5,206 small coal mines, which tend to be more inefficient and less safe, from August 2005 to June 2006, 2,652 from July 2006 to June 2007 and 2,209 from July 2007 to June 2008.

However, according to a recent announcement made by Zhao Tiechui, head of SACMS, the government actually closed more mines than expected. So far, 5,931 mines were shut down in the first period and 3,053 in the second period.

In addition, the Ministry of Land and Resources announced early this year that from February 2007 to the end of 2008, no new coal mine exploration applications will be accepted.

Furthermore, China's National Development and Reform Commission is working to revise the country's Coal Law, which initially came into effect in 1996, to increase entry requirements for the coal mining sector, making it more difficult for coal companies to enter the sector.

According to CCTDA's report, investment in the coal mining industry in 2006 was up 27.2 percent year-on-year, but up only 13.5 percent year-on-year between this January and May. It predicted that the general investment made in 2007 will be only 10 percent higher than in 2006, a much slower growth than previously.

Coal prices will grow higher and higher, as China has become a net importer of coal, according to the report.

China lowered coal import tariffs from between 3 percent and 6 percent to between 0 percent and 1 percent, while imposing a 5 percent tax on the export of coking coal in November 2006 and further canceling import tariffs on some kinds of coal this May.

The tariff adjustment, as well as the increasing coal demand, has made China a net coal importer this year, as imports exceeded exports by 2.89 million tons in the first quarter, the first time in history.

"China has much influence on the Asia-Pacific coal market, as it was once a large coal exporter, exporting coal to Japan and other Asia countries. As China has become a net importer this year, Asia's coal dependency on Australia will be higher, which will surely raise the price of exported coal in Australia, which will then influence China and the whole of Asia," the report read.

Currently, China imports coal mainly from Vietnam, Indonesia, Australia, Russia and North Korea.