In the next two years, the coal market in our country will experience an oversupply

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Recently, the Ministry of Land and Resources decided to continue suspending the acceptance of new applications for coal exploration rights across the country. Analysts point out that **they hope to alleviate the price pressures caused by excess coal production by controlling the total supply. However, downstream demand may continue to deteriorate, causing coal prices to keep falling. 　　According to statistics from the Ministry of Land and Resources, China’s existing coal resources and enterprises have sufficient resource guarantees. Currently, there are over 2,300 coal exploration rights across the country, covering a total resource reserve of around 500 billion tons. The 23,000 coal mining enterprises in the country utilize more than 270 billion tons of these resources, accounting for 23.4% of the total reserves; the remaining resources amount to over 900 billion tons, representing 76.6% of the total reserves. 　　Behind this massive volume of resources, domestic coal production capacity is also expanding rapidly. According to statistics from the China Coal Association, China’s coal production in 2008 was 2.716 billion tons; compared with the actual production level, there was an unused capacity of 400 million tons. Moreover, the currently approved production capacity has already exceeded the target output set in the National Mineral Resources Plan. 　　According to the National Mineral Resources Plan approved by the State Council not long ago, China’s planned coal production for 2010 was 2.9 billion tons. The gap between China’s coal production in 2008 and the planned coal production in 2010 was less than 200 million tons. Between 2007 and 2008, more than 520 coal exploration rights across the country were converted into mining rights. Of these, the more than 70 mining rights established by the Ministry of Land and Resources (including those resulting from expansions or renovations) were expected to add a production capacity of over 210 million tons. If we also include the more than 450 mining rights established by various provinces, then by 2010, the country’s coal production capacity would **exceed the planned levels**. 　　Despite the accelerating expansion of idle production capacity in the country and the decline in coal market prices due to the international financial crisis, some private investors remain optimistic about coal demand after the crisis; from the end of 2008 to the present, there have been many applications from private investors for coal exploration and mining. 　　Wang Ye, an analyst in the coal industry at CITIC Securities, believes that the pressure of supply exceeding demand in China’s coal market will remain high over the next two years. **It is essential to control the allocation of coal exploration rights at the source, as this can help balance the current situation of supply exceeding demand in the coal market and prevent overcapacity resulting from excessive investment in exploration. This is of great significance for the long-term development of China’s coal industry. 　　Nevertheless, in the short term, due to the weakening demand from downstream industries that rely on electricity such as steel and cement, power generation by electricity companies will decline, and the coal industry will once again face inventory pressures. Analysts at CICC believe that domestic coal prices will continue to face downward pressure after April. Due to insufficient demand, coal intermediaries cannot sustain price reversals for long, and this will eventually lead to pressure on the currently rising prices of coal at the mine site, resulting in a second round of price declines. 　　Furthermore, the relatively weak international coal prices will also exert pressure on domestic coal prices in the future. For example, the prices of coking coal agreed upon by Australia for 2009 are 129 dollars per ton, while the price of thermal coal is around 70 dollars per ton, and the price of injection coal is 90 dollars per ton – all of which are significantly lower than China’s current spot coal prices. http://www.cheminfo.gov.cn/static/temp_hgyw/20090330216672.htm