Chinese coal prices could maintain upward momentum
The Chinese Coal Industry Association anticipates that
China's coal
consumption will increase 6% (120 million tons) to reach 2.1 billion tons by the end of 2005.
Although the predicted pace is slower than last year's 12%
consumption increase, the country's mines will add 100 million tons to total
production. However, recent government crackdowns on mine safety after a spate of accidents left more than 300 dead over the past few months mean that the additional 100 million tons of
production may not be realized.
Most of the mines in the country are working 20-30% above their normal capacity, and the government is preparing to take measures against such over
production due to safety reasons. 40% of the country's mines are operating under unsafe conditions, according to the government.
The average coal price in North
China's Shanxi Province, the hub of coal
production in
China, is expected to increase around 5% (US$1.2-US$1.8) per ton compared to the first quarter.
Increased demand from power plants and steelmakers remains the major contributor to the increase in coal prices.
Beijing is understandably worried about the increase in coal prices. Higher coal prices mean that many of the country's downstream industries face rising
production costs. This in turn causes these downstream industries to increase their prices, thus setting the stage for inflation to begin spiraling out of control.