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China May Face 100 M ton Coal Shortage

Thursday, August 16th, 2007

It has been said that China may face up to a 100 M ton coal shortage in 2010 due to policy adjustments in the coal industry in recent years, according to a report released by the China Coal Trade & Development Association (CCTDA) this week.Predictions have said that China’s coal demand could reach 3.01 b tons in 2010, and the shortage may reach 100 M tons, according to the report. However, if the country’s economic growth slows down, the shortage will not be as acute. According to the report, policies that will help create a shortage include pressure to make coal companies safer, the reduction of new coal exploration activities, increasing entry requirements into the coal industry and increased imports of coal as opposed to domestic production. Although China has put a lot of pressure on coal companies in recent years to improve safety, especially on small mines, as China has the most coal mining accidents in the world. The State Administration of Coal Mine Safety (SACMS) announced as part of its three-year plan that it could possibly shut down 5,206 small coal mines, which tend to be more inefficient and less safe.
However, according to a recent announcement made by Zhao Tiechui, head of SACMS, the government has actually closed more mines than expected. So far, 5,931 mines have been shut down in the first period and 3,053 in the second period.
In addition, the Ministry of Land and Resources announced early this year that from February 2007 to the end of 2008, no new coal mine exploration applications will be accepted. Furthermore, China’s National Development and Reform Commission is working to revise the country’s Coal Law, which initially came into effect in 1996, to increase entry requirements for the coal mining sector, making it more difficult for coal companies to enter the sector. According to CCTDA’s report, investment in the coal mining industry in 2006 was up 27.2 percent year-on-year, but up only 13.5 percent year-on-year between this January and May. It predicted that the general investment made in 2007 will be only 10 percent higher than in 2006, a much slower growth than previously.
Coal prices are predicted to grow, as China has become a net importer of coal, according to the report.
China lowered coal import tariffs from between 3% and 6% to between 0% and 1%, while imposing a 5% tax on the export of coking coal in November 2006 and further cancelling import tariffs on some kinds of coal this May.
The tariff adjustment, as well as the increasing coal demand, has made China a net coal importer this year, as imports exceeded exports by 2.89 M tons in the first quarter, the first time in history.
Currently, China is said to import coal mainly from Vietnam, Indonesia, Australia, Russia and North Korea.

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