UPDATE 2-China may miss new target to cut coal output growth

Thu Mar 22, 2012 8:00am EDT

* Sets 2015 output target of 3.9 bln tonnes

* To boost coal rail capacity to 3 bln tonnes by 2015

* To encourage imports, support overseas M&A

* To improve pricing system, studying coal futures trading (Updates throughout, adds analyst comment)

By Jim Bai and Fayen Wong

BEIJING/SHANGHAI, March 22 (Reuters) - China plans to slow annual growth in coal output to about 2 percent over the next four years from around 10 percent to conserve resources and protect the environment, but analysts said rising demand will make reaching that target difficult.

The government has set targets of overall production capacity of 4.1 billion tonnes and annual output of 3.9 billion tonnes by 2015, up 11 percent from the 3.52 billion tonnes dug last year, according to a plan issued by the National Development and Reform Commission (NDRC).

Major coal exporters Australia and Indonesia are set to benefit if the plan leads to rising imports and as Beijing scours the world for more coal assets and mulls a special fund to help its firms secure production overseas.

As China's coal grades decline and if its economic growth speeds up, Beijing will struggle to stick to its goals and also meet rising demand without a run-up in coal prices, analysts said.

"Coal output grew by 0.3 billion tonnes between 2010-2011 alone, so it's hard to see how it can rise by only 400 million tonnes over four years without binding targets," said Helen Lau, a resource analyst at UOB-Kay Hian in Hong Kong.

"These are guidance and not binding targets. There's a lot of room for coal consumption and imports to grow," she said.

The forecasts are probably based on the government's latest economic growth target of 7.5 percent per annum, "but China's GDP has always exceeded government targets", she added.

The plan, released by NDRC and compiled by the National Energy Administration (NEA), did not give estimates for coal imports but said China would encourage more overseas shipments and support local firms in the acquisition of foreign coal assets, possibly through a special fund.

"It's difficult to set a target on coal imports in 2015. That will be mainly decided by prices," said Fang Junshi, head of the NEA's coal department.

IMPORTS

After decades of heavy investments in coal mining to feed blistering growth in demand, many Chinese provinces along the coast no longer have enough supplies for their power plants. The government has been moving production bases further west to areas such as Inner Mongolia and Xinjiang.

But the heating value of coal in these areas is low and reserves are located deep underground, which means power plants need to burn more of this coal to produce the same amount of electricity and that mining costs are rising.

The NDRC said domestic coal transportation via rail is seen reaching 2.6 billion tonnes by 2015 and it would increase rail capacity ti 3 billion tonnes to prevent transport bottlenecks.

The plan also said China needs to improve its energy efficiency and curb coal consumption in an attempt to reduce pollution, which is among the worst in the world.

But it stopped short of setting a hard target and said only that "it would be appropriate" to cap coal consumption at 3.9 billion tonnes by 2015.

Meanwhile, China's demand for imports, up 10.6 percent last year to 182.4 million tonnes, is likely to continue growing, benefiting coal suppliers Australia, Indonesia and even South Africa.

Energy trader Noble Group said last year that China's thermal coal imports alone could top 200 million tonnes by 2015, and other industry estimates range between 180 million to 300 million tonnes.

Top coal exporter Australia currently has about $14 billion worth of new projects and expansions under construction or committed through 2014, which will eventually produce an additional 80 million tonnes of thermal and coking coal.

It also has projects for another roughly 420 million tonnes on the drawing board. (Additional reporting by Rebekah Kebede from PERTH, editing by Jane Baird)

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