China's coal shortage is expected to grow this year as supply fails to keep pace with mounting demand, according to a senior official from the China Coal Industry Association.

Pu Hongjiu, deputy director of the association, said the nation's coal consumption is expected to increase this year by 120 million tons to 2.1 billion tons - a rise of 6 percent.

Although that is slower than last year's growth of 12 percent, demand will continue to outpace supply.

China's coal output can only increase by 100 million tons this year with the opening of several new mines, Pu told reporters on Wednesday, but did not reveal how much actual output he expected this year.

The nation's collieries produced 1.96 billion tons of coal last year, a year-on-year rise of 13.2 percent.

Pu indicated that even the additional coal supply of 100 million tons this year may not be realized.

Small coal mines at county level, which accounted for 35 percent of coal output last year, may not maintain their output levels because they are constrained by poor output safety records.

Small mines with a production capacity of at least 200 million tons have to be shut down because they lack of necessary safety control facilities, according to Pu.

But Pu did not give a specific timetable for their closure.

"The stretched coal supply has intensified this year... The supply-demand gap will swell greatly," Pu said.

China has been afflicted with tight coal supplies since late 2003. Coal supply growth could hardly keep pace with the surge in power generation which consumes half of the nation's total coal output.

Electricity consumption maintained a 15 percent growth rate over the past two years, with a great degree of this coming from the energy-hungry steel, cement, aluminium and automobile industries.

Adding to the woes, transportation problems on the rail network meant that coal - mainly from northern China - had increased difficulties reaching many of its consumers in eastern and southern regions.

The coal shortage has led to power cuts in many parts of the nation, with the tight supply situation expected to continue this year, said Pu.

Coal stockpiles at power plants can only last for eight days, with plants in Hunan, Anhui and Jiangxi provinces having only enough coal to last for three days.

But an official from the association yesterday said it was still too early to have a clear picture of this year's coal market.

Coal demand largely depends on whether the government's move to rein back the rampant investment in energy-hungry industries can take effect.

Since last April, China started to move to cool down over-investment in industries such as power, steel, cement and aluminium.

Earlier this month, the government suspended the construction of more than 20 power projects, citing they have not met environmental standards.

Zhang Wenxian, an analyst with Guotai Jun'an Securities (Hong Kong), said the coal shortage will be eased this year as the transport constrains will be alleviated with the operation of additional rail routes.

"The supply shortfall was the worst ever last year. This year, it will be eased, although the supply will remain tight this year," Zhang said in a telephone interview.

Industry insiders said much uncertainty remains about coal supply because the coal supply contracts have not been completely agreed.

At the annual coal ordering conference earlier this month, more than 900 million tons of coal supply contracts were concluded, 80 million tons more than the previous year, according to statistics from the association.

The supply under the so-called "key contracts" increased by 30 percent to 618 million tons. Key contracts allow users enjoy government-backed lower prices for coal.

But industry insiders said most of the contracts did not specify the prices.

The contracts signed only to help arrange transportation. But the contracts may not be executed if negotiations over coal prices break down in the future, the insiders said.

(China Daily January 28, 2005)