China coal under more pressure as demand falters

BEIJING, Sept 4 Tue Sep 4, 2012 5:50am EDT

BEIJING, Sept 4 (Reuters) - China's coal prices, already near a two-year low, are likely to fall further as industrial demand growth slows and imports add to pressure on domestic stocks, i nd ustry officials said on Tuesday.

Benchmark prices in China, the world's top producer and importer of the fuel, have been lolling at two-year lows of 626 yuan ($98.50) a tonne since end-July amid a global supply glut.

Hou Wenjin, a coal industry official with the Shanxi government, the country's second-biggest coal producing region, predicted China's 2012 imports could top 200 million tonnes as coastal utilities lock in cheaper foreign supplies.

"Overall inventories, at over 80 million tonnes, are still much higher than normal levels, so I don't think there will big demand even for winter restocking," he said.

Imports of more than 200 million tonnes would compare with 2011 imports of 182.4 million tonnes. January-July imports totalled 133 million tonnes, a rise of 51.8 percent over a year earlier, customs data shows.

China produced 3.52 billion tonnes of coal in 2011 and has set a target of 3.65 billion tonnes this year. Officials spoke an industry conference on Tuesday.

Chen Ze, deputy director with the coal industry department of the government of Inner Mongolia, China's biggest coal producing region, said demand growth from key industrial users such as those in the steel and cement sectors would "most likely slow".

A slump in the Chinese steel sector has also put coking coal prices under pressure, and this will have knock-on effects for coal as a whole, said Dong Yueying, secretary general of the China Coal Transportation and Distribution Association.

"Falling prices means it is no longer economical for mines to wash the coal to get higher specifications. So more mines will sell into thermal markets," he said.

Chen of the Inner Mongolian government said he expected a "flood of imports" to compound the oversupply problems on the Chinese market.

"We expect to see strong exports from the United States due to the shale gas boom, and also increased shipments from Australia, Indonesia, Columbia and South Africa because demand in Europe is poor so everyone will try to move their coal to China," he said.

"We may see supply growth surpassing demand over the coming months as China's economy cools." (Reporting by Fayen Wong; Editing by Neil Fullick)

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