Surplus supply keeps coal price in a low ebb

Updated: 2013-01-28 07:50

By Wei Tian (China Daily)

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Surplus supply keeps coal price in a low ebb

The price of coal is likely to remain bearish this year because of surplus production and the probable further decline of power production, the former head of the National Energy Administration said on Saturday.

China's industrial production, including in energy sectors, has had a sufficient supply of coal and power in recent years, and 2013 will be similar, said Zhang Guobao, the former director of the administration.

Zhang was speaking at an annual economic forum in Beijing organized by the China Center for International Economic Exchanges.

He said the coal price has declined by 200 yuan ($32) per metric ton since May, and the coal price at Qinhuangdao Harbor remained in a trough at around 645 yuan per ton even during the peak demand period in winter.

Meanwhile, the average usage of thermal power generators declined by 340 hours, or 6 percent, to 4,965 hours in 2012.

"The supply of coal and electricity will still be sufficient in 2013, and we won't have any shortages.

"I have been right in predicting the coal price so far, and I don't think there is any upward momentum in the year to come," he said.

A major reason for the weak coal demand was inadequate usage of China's massive installed capacity of power generation, which is the world's largest at 1.14 billion kilowatt.

"The use of power generators isn't expected to increase (this year) either, it may even decline further."

The decline would be a further driver in trimming China's overcapacity in some industrial sectors, which will result in the elimination of some out-of-date units.

China was the largest producer of 220 of the 500 major industrial products. The nation's production of steel, cement, coal and ships each accounted for more than 45 percent of the world's total.

However, Zhang said, many of these sectors may have already peaked in production. "Steel output in Qian'an county, Hebei province, has exceeded that of Germany, and the output in Tangshan city was more than that of all of European Union."

According to data released by the China National Coal Association on Friday, China's coal production grew by 4 percent in 2012, down 4.7 percentage points from the previous year.

Meanwhile, by the end of December, the inventory of coal producers rose 58 percent from a year before, to 85 million tons. As a result, the confidence index extended its negative trend in December, while analysts said the demand would remain sluggish in 2013.

But some analysts see a brighter picture. Yang Cuihong, a professor of economics at the Chinese Academy of Sciences, said a stabilizing economy and accelerated urbanization would lead to an increasing demand for electricity and coal in the third and fourth quarters this year.

Yang said as global demand for coal remains at an ebb, a rebound in the domestic market might drive more coal imports.

"In 2013, the structural adjustment and reduction of overcapacity will be a major task for the Chinese economy.

"Like it or not, some enterprises will have a hard time carrying on, and we must be prepared for that situation," he said.

Li's words echoed a document released on Tuesday by the Ministry of Industry and Information Technology, which called for the merger and reorganization of nine key sectors that show overcapacity to improve efficiency.

Zhu Hongren, the ministry's chief engineer, said, "Promoting mergers and reorganizations will result in better resource allocation, adjust and optimize industrial structures, and improve the global competitiveness of key enterprises."

"China is now in the middle stage of industrialization. It should not simply pursue growth in quantity anymore, but focus more on innovation and structural adjustment," Zhang said.

"We should not expect double-digit growth, as in the past thirty years. A middle speed of growth of 7 to 8 percent will be the norm," he said.

(China Daily 01/28/2013 page5)