Bloomberg News

China Plans to Limit Mining of Coking Coal, Journal Reports

September 30, 2011

Sept. 30 (Bloomberg) -- China plans to limit the mining of coal used in steel-making under regulations that the National Energy Administration will issue soon, the China Securities Journal reported, citing people that it didn’t identify.

Companies seeking government approval to explore for coal will face more stringent criteria, while mines will be required to boost production efficiency, the newspaper reported, citing the unidentified people.

China is stepping up efforts to conserve natural resources including rare-earth metals and bauxite by clamping down on illegal mining and curbing exports of the commodities. Domestic prices of coking coal, a raw material in steel-making, have more than doubled in the past six years as demand increases in the world’s fastest-growing major economy.

“Surging prices have spurred investors to pursue coal assets in Inner Mongolia and other regions,” Zhang Weifang, a Shanghai-based analyst at researcher Mysteel.com, said by telephone. “The new rules will probably aim to curb these activities, rather than limit output that will cause prices to rise further.”

Prices of hard coking coal sold by Shanxi Coking Coal Group in China climbed to a record 1,902 yuan ($298) a metric ton as of June 30, according to the McCloskey Group Ltd. As of the end of last month, the prices were at 1,871 yuan a ton.

Higher global prices have also encouraged coal producers to increase exports even as domestic shortfalls continue, Zhang said. China, a net importer of coking coal, boosted exports of the commodity to South Korea, North Korea and Taiwan in August by five-fold from a month earlier to 461,489 metric tons, according to Mysteel, citing customs data.

Power Shortages

Apart from curbs on exports, the government may also ban the use of coking coal as fuel at power plants, said Zhang Bochun, secretary general of the Hebei Coking & Chemical Industry Association. Coal is used to fire about 70 percent of the country’s power plants.

The National Energy Administration said yesterday that electricity shortages may persist in coming months because of reduced hydropower production.

Coking coal is more valuable than the grade used for electricity generation. Power-station, or thermal, coal prices at China’s Qinhuangdao port were at 835 yuan to 845 yuan a ton as of Sept. 25, according to data from the China Coal Transport and Distribution Association. That’s 17 percent higher than a year earlier.

Prices have risen after some mines in Shanxi, China’s biggest coal-producing province after Inner Mongolia, were ordered to shut because of a fatal mining accident on Sept. 16.

Repairs to the Daqin Railway, which transports coal from northern China to Qinhuangdao for shipping to manufacturing centers in the south and east, are also slowing deliveries as power plants build stockpiles before winter.

--Helen Yuan. With assistance from Chua Baizhen in Beijing. Editors: Ryan Woo, Baldave Singh.

To contact Bloomberg News staff for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net.


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