China – World’s Largest Miner – Is Short of Coal

While China, an importer of enormous amounts of iron ore, is doing its utmost to avoid a crippling price rise for that particular commodity, it is also the world’s largest coal miner and many here would be quite happy to see its price shoot for the moon. But price hike or no price hike, China’s coal future is facing difficulties.
The 2008 Sino-Japanese negotiations on coal prices have begun.

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The annual coal negotiations between Australia and Japan are also going to affect the Sino-Japanese discussions, and the results of these two sets of negotiations will carry global influence. China’s disastrous winter, floods in Australia and supply disruption in South Africa will all boost the price of Asian coal in the short term. And, according to Credit Suisse, a Swiss bank, a thermal coal supply shortage and growing production costs will maintain high price levels in the long term. It is predicted that the 2008 benchmark (the price at Australia’s Newcastle port) will reach $120 per ton, while in 2009 and 2010 it wll still be at $100 per ton.

China’s large coal miners all expect a significant price hike and predict the Sino-Japanese and Australia and Japan negotiations will decide the volume and price of thermal coal and metallurgical coal exports.

But a boost in the price of coal will not solve the problems facing China, which are two-fold. First, a price hike for coal exports will affect the domestic coal price, jacking up the costs of power suppliers, among others, and stoking the inflation which has become a serious dilemma for Chinese economic policy makers.

Second, due to China’s growing need for energy and the rising international oil price, lately over $110 per barrel, China now burns much more coal. As a result, China’s coal exports are expected to decrease, to the extent that China will become a net coal importer.

A report by the National Development and Reform Commission predicts as much. Affected by a slowdown in railway transport capacity growth, the effective domestic coal supply is estimated to fall short of need and coal imports will rise.

China Stakes