Insufficient capacity and rising costs: Coal prices will continue to rise in 2008

Thread Content

Due to factors such as tight shipping capacity and rising mining costs, coal prices are expected to continue rising in 2008. 　　“In 2008, the capacity of the Taijin Railway line will increase by 30 million tons, while the capacity of the other lines will be essentially saturated. ”This was revealed by Ou Xinqian, deputy head of the National Development and Reform Commission, and Hu Yadong, vice minister of the Ministry of Railways, at the video conference on coordinating coal production, transportation, and demand held yesterday in 2008. 　　“Since the 11th Five-Year Plan period, although production capacity in the coal industry has expanded rapidly, the potential pressure of coal overproduction has not materialized due to insufficient transportation capacity; as a result, coal prices continued to rise steadily in 2007. In 2008, coal transportation capacity remained tight. 　　According to the notice issued by the **Development and Reform Commission the day before yesterday, titled \"Notice on Ensuring Proper Coordination of Coal Production, Transportation, and Demand across Provinces and Regions in 2008,\" the target for the total volume of coal transported by rail across provinces and regions in 2008 is 785 million tons. Last year, this figure was 738 million tons, representing an increase of 47 million tons. According to Ou Xinqian, deputy head of the National Development and Reform Commission, and Hu Yadong, vice minister of the Ministry of Railways, as stated yesterday, the Daqin Line, China’s largest coal transport route, will see an increase in its transport capacity by 30 million tons in 2008. The capacity of other railways is essentially saturated and will remain unchanged. 　　**Ou Xinqian, deputy head of the National Development and Reform Commission, said that due to the increased transport capacity on the Daqin Railway, coal supply in East and South China will be good next year. However, coal supply in Central China will be tight owing to limitations in transport capacity. To ensure coal supply to the Central China region, Ou Xinqian requested that coal from East China and South China be transported by water as much as possible, so as to free up railway capacity for the Central China region. 　　The Daqin Line connects Datong and Qinhuangdao, mainly transporting coal from northern Shanxi. Central and southern Shanxi, as well as coal-rich Shaanxi and Inner Mongolia, remain constrained by transportation capacity, making it difficult to expand production. However, it is precisely due to the tight capacity that the pressure for coal prices to drop resulting from overcapacity has been alleviated. 　　Data provided by the China Coal Industry Association show that from 2001 to 2005, the total investment in fixed assets for coal-related projects across the country amounted to 248.9 billion yuan, exceeding the total investment from the previous nine five-year plans, and the scale of coal mine construction expanded rapidly. **Ou Xinqian, vice minister of the National Development and Reform Commission, revealed yesterday that over 500 million tons of coal will come online each year in the next two years. The current coal production capacity is 2.5 billion tons, and by 2008 it will reach 2.93 billion tons. 　　In fact, railway capacity has now become a key factor in coal prices. “Although coal industry capacity has **increased**, limited transport capacity in 2008 prevented that capacity from being utilized, resulting in a continued tight supply of coal and steady coal prices. ” 　　Due to tight shipping capacity, coal prices remained steady and on the rise in 2007. 　　Other industry experts analyze that, in addition to capacity factors, there are other factors that could drive up coal prices: first, there is a substitution relationship between coal and oil. Rising international crude oil prices can drive up coal prices. Second, rising costs. To promote the efficient use of resources and environmental protection, since 2006, our country has successively imposed resource taxes and fees as well as a sustainable development fund; these increased costs have driven up coal prices. 　　In addition, there are some notable characteristics in coal supply and demand this year: first, the degree of tightness in supply and demand varies among different types of coal. Among them, coking coal for metallurgy is in short supply, while thermal coal is relatively abundant. Second, the degree of supply and demand tension varies across different regions. Due to capacity constraints, supply is tight in the Central China region. Third, the degree to which coal produced in various regions and by different companies is integrated with market coal varies; some coal companies have significant potential for price increases. For example, Shenhua Group plans a price difference of 70 to 80 yuan per ton between its coal and market coal, and the same is true for Datong Group.