Forecast of market prices for Chinese coal in 2008

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After entering December 2007, whether in China’s domestic coal market or in the global coal trade market, the focus of discussion among those involved in the coal industry was undoubtedly the price of coal in 2008. Coal prices are determined by the supply and demand of coal. In 2008, the biggest difference between China’s domestic coal market and the global coal trade market compared to previous years was that, although there was no shortage of coal supply, the relationship between coal supply, trade, and consumption led to a situation of \"basic balance between supply and demand\" and \"virtually zero surplus\", phenomena that were rare in the past. Under these circumstances, both the domestic coal market prices in China and the trade prices in the global coal market are expected to rise significantly. In particular, regarding the domestic coal market prices in China as well as China’s coal export prices, in addition to the \"normal price increases\" caused by supply and demand factors, it is also necessary to take into account the factor of \"price rises resulting from changes in China’s pricing system\" – such as increases in China’s \"coal resource tax,\" as well as additional fees like those for \"mine environmental restoration\" and \"funds for the transformation and development of coal mines.\" These increased taxes and fees will inevitably reduce the profits of coal production companies by 25–30%. In China’s coal exports, in addition to considering the various factors mentioned above regarding rising domestic coal costs, it is also necessary to take into account the possibility of a 5% increase in China’s coal export taxes, as well as the possibility that the Chinese yuan could appreciate by around 8% further against the US dollar. Taking into account the various practical factors affecting China’s coal production costs, the following forecast for the market prices of coal in China in 2008 is provided: In 2008, although domestic coal users in China may find the aforementioned coal prices to be too high, the simultaneous and significant increase in international coal prices as well as international shipping costs will ensure that the overall cost of importing coal is **higher than the aforementioned domestic coal prices. As a result, Chinese coal users will not be able to use imported coal to stabilize domestic coal prices. In 2008, for coal-using companies outside of China, Chinese coal prices were undoubtedly **higher than the generally accepted average price in the international coal market. If one believes that the price of Chinese coal exports is too high, they can choose not to buy it, but there is absolutely no room for bargaining with the sellers of Chinese coal exports. In 2008, whether China exported around 40 million tons of coal or stopped exporting it altogether and sold those 40 million tons on the domestic market, such a volume would represent only a 1.6% increase or decrease in China’s domestic coal market, which has a total capacity of around 2.5 billion tons; this would not have any impact on the prices of coal in that market. 　　 Therefore, 2008 was a seller’s market for coal commodities, especially for Chinese coal, whose dominance could be described by almost extreme terms such as \"fixed price.\" 　　 However, the irresistible law of contradiction – \"extremes meet their opposites\" – while creating a peak in coal prices in 2008, is also fostering a turning point in the supply and demand dynamics of coal; the decline in coal prices may already have quietly begun.