China has moved towards the high coal-price era

Chinese leading analysts in various industries have recently made optimistic forecasts on the Chinese coal industry, believing that the high coal-price era will continue in China in the coming years, due to the following four critical factors.

First, regrouping strategy. China will continue to implement the regrouping strategy to allow coal producers to be bigger and stronger, by means of resource and enterprise consolidation, leading to setup of six to eight 100-million-ton-class and eight to ten 50-million-ton-class coal conglomerates.

Also, China will shut down 2,000 more small coal mines in the second half of this year, which may help curb the excessive growth of coal supply and raise the industrial concentration ratio.

Second, robust coal demand. Coal demand remains robust in 2007 as a whole, by coal-consuming industry, the coal demand in the steel, power, chemicals and building materials sectors will grow 12 percent, 10 percent, 5-7 percent and 7 percent, respectively. Overall, the growth rate of coal consumption in the four major sectors will reach 9-10 percent in 2007, and this pattern is expected to remain unchanged in the coming five years.

Third, China's switching to a net coal importer. It is expected that China will continue to be a net coal importer in a fairly long run, subject to higher import prices driven by higher petroleum prices.

Fourth, policy-related costs. New policies have been pushing up coal costs. For example, the coal resource loyalty policy that took effect this March, increased coal costs by 30-50 yuan/ton, in addition to policies such as mine environment compensation and sustainable development fund.