By late October, most northern regions in China had entered the winter season, the usual peak time for coal consumption. With the sharp increase in demand for heating coal, supply has started to fall short of demand. As a result, the market price of coal appears likely to increase further in the near future.
Currently, there is significant transaction activity in China's main coal markets, such as Tianjin and Qinhuangdao, with shortages observed in supplies of the various types of coal.
In October, China's leading coal companies - Tongmei Group, Shenhua Group and some other big coal suppliers - adjusted their ex-factory prices for coal products upwards by RMB 10-15/mt ($1.3-2/mt). Under this influence of this rise, the nationwide coal price will inevitably go up.
Furthermore, in October the 17th National Congress of the Communist Party of China was held in Beijing. In line with this official gathering, all levels of local government enforced strict control of coal production in order to forestall any safety accidents. Thus, the reduced coal output in October caused even greater imbalance between supply and demand of coal, providing further support for high prices.
According to the official data, China's coal output has continued to increase throughout the current year. In September 2007, national coal output totaled 203.5 million mt, up 9.4 percent year on year. In addition, the total output for the first nine months of 2007 reached 1.68 billion mt, up 11 percent year on year. The total output for the whole of 2007 is expected to be 2.4 billion mt.
Certainly, the remarkable increase in coal output is driven by the strong demand in the local market. Nearly 80 percent of China's coal consumption is accounted for by four main industries: electric power generation, construction materials production, metallurgy and the chemical industry. The yearly consumption growth rate of these four industries remains over 10 percent on average. In particular, steam electric power generation, is the most important contributor to the consumption of coal.
For the moment, the ex-factory prices of coal products are higher by RMB 30/mt ($4/mt) than the level of a year ago. The increase trend is thought likely to be maintained until late November when supply is expected to see an obvious increase and to adequately meet the market demand.