Domestic coal prices have retreated slightly on the back of a moderate oversupply in the fragmented sector and analysts predict the downtrend will continue through 2007.

Prices from major producers in resource-rich areas such as Shanxi, Shandong and Anhui provinces have slid some 30 yuan (US$3.7) to 50 yuan (US$6.2) per ton on average since July, according to industry sources.

Prices at the coal exchange centre in Qinhuangdao of north China's Hebei Province, one of the country's major ports for coal transportation, have fallen some 7 percent over the past two months, a drop from 440 yuan (US$54) per ton to the current 410 yuan (US$50) per ton, Li Xuegang, president of the coal exchange centre told China Daily yesterday.

"The situation reflects a moderate surplus of coal supply, which was tight in previous years because of soaring demand for energy," Zhu Deren, vice-president of the China Coal Industry Association (CCIA) told China Daily.

Guo Yuntao, director of the China Coal Industry Development Research Centre told a July coal conference in Beijing that the country is expected to produce 200 million tons more than last year, while demand will rise by some 150 million tons.

China last year produced 1.96 billion tons of coal, and used 1.89 billion tons, with exports and imports reaching 87 million and 19 million tons respectively.

"China's coal production this year will obviously outpace demand," said Guo.

Mou Qizheng, a coal industry analyst with Shanghai-based Shenyin Wanguo Research and Consulting Co Ltd, said the falling trend in prices is expected to continue up to 2007, when the government's long-term plan to consolidate the coal sector and close small collieries could cut production.

But the price drop will be gradual, and a sudden plummeting is not likely, said Zhu.

Industry experts say the current oversupply is largely due to the increased capacity in production and rail transportation, as well as a slowdown in major industries such as steel and cement following the government's macro control measures to cool overheated sectors.

Two rail expansion projects, to be completed this year, will be able to transport an additional 100 million tons of coal annually from Shanxi to Hebei and Henan provinces.

The country's top economic policy-making body, the National Development and Reform Commission (NDRC), will shut down small coal-fired generation units with a capacity of 5.34 million kilowatts by 2010. Sufficient rainfall this year has also cut the reliance on coal resources for power generation with hydro projects running at full tilt.

Besides, the country reduced or scrapped export tax rebates for certain coal products in the first half of the year, which cut coal exports by 18 percent from January to June, the industry association said.

But supply and demand could reach a balance when production from small, unsafe mines is halted, Zhu said.

The State Administration of Coal Mine Safety said on Tuesday that the country would shut down about 7,000 mines - a third of the total - by the end of this year.

Zheng Yong, secretary-general of the East China Coal Sales Association, said the price drop is seen only for low-quality coal, and the supply of high-quality products still remains tight.

Some coal producers have signed long-term supply contracts with major users such as big power generators, and the price drop would have little impact on those suppliers, Zheng added.

(China Daily September 1, 2005)