**Coal Prices Face Resistance Despite Tight Coking Coal Supply**
According to a recent report from the National Development and Reform Commission, coal supply and demand are expected to remain balanced in 2008, with average prices continuing to rise. However, while the dynamic coal market may see tighter conditions, price increases will face resistance. Specifically, coking coal supply is expected to stay tight, with prices likely to climb between 15% and 20%.
**Overall Supply and Demand Remain Balanced**
The report suggests that China’s economy will continue to grow steadily in 2008, with fixed asset investment—especially in heavy industries—expected to slow down. Meanwhile, real estate development and investment are projected to grow rapidly.
On the demand side, regional development strategies such as western China’s growth, the revitalization of the northeast, the rise of central China, and the development of the Bohai Economic Zone are driving coal demand. Additionally, the construction of new rural areas is contributing to increased coal consumption. However, the production growth of most coal-fired products has slowed, and improvements in industrial technology and energy-saving policies are helping to reduce coal demand. As a result, overall coal demand will remain strong but grow at a moderate pace, with an estimated increase of 6% to 8%.
On the supply side, over 250 million tons of new coal production capacity is expected to come online in 2008. However, some outdated small mines may be shut down, keeping the overall production growth stable. The expansion of coking coal production capacity is limited, and railway transport capacity growth has slowed, leading to potential bottlenecks in certain regions.
Furthermore, the appreciation of the renminbi has increased export costs, reduced long-term contracts, and limited the potential for further coal exports. Export policies remain controlled by the government, ensuring that coal will continue to be imported rather than exported.
Overall, the basic balance of coal supply and demand is expected to remain unchanged in 2008. While thermal coal supply and demand may become tighter due to limited railway capacity, coking coal supply will remain constrained, driven by low production and transportation growth.
**Mixed Outlook for Coal and Coking Coal Prices**
The report forecasts that coal prices will continue to rise in 2008, though the increase for thermal coal will be modest and face significant challenges. Market forces suggest there is still room for price hikes, but government intervention and internal industry dynamics complicate this process.
Thermal coal prices are under pressure due to rising inflation, uneven profit distribution in the power sector, and uncertainty around the implementation of coal-electricity linkage policies. In September 2007, the NDRC adjusted electricity tariffs in the Beijing-Tianjin-Tangshan region, signaling a shift toward cost-based pricing, though it did not fully align with regional demands.
In contrast, coking coal prices are more influenced by supply and demand dynamics, rising costs, and industrial relations. With supply remaining tight since mid-2006, coking coal is expected to remain scarce in 2008. Production costs in Shanxi, the main coking coal producer, are also increasing, pushing prices higher.
Internationally, coking coal contract prices are expected to rise by over 30% in fiscal year 2008, creating a favorable environment for domestic price increases. Based on these factors, coking coal prices are projected to surge by 15% to 20% in 2008.
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