**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 an overall upward trend in prices. However, while the dynamic coal market is likely to become tighter, price increases may face resistance. Specifically, coking coal supply is expected to stay tight, with prices projected to rise between 15% and 20%.
**Overall Supply and Demand Remain Balanced**
The report highlights 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 anticipated to grow rapidly. Several regional development strategies, such as the western development initiative, the revitalization of the northeast, the rise of central China, and the development of the Bohai Economic Zone, are also expected to drive coal demand. Additionally, the construction of new rural areas is contributing to increased coal usage.
On the other hand, the growth in production of coal-fired products has slowed, and improvements in technological structures within major coal industries, along with strengthened energy-saving and emission-reduction policies, are helping to reduce coal demand. As a result, overall coal demand is expected to remain strong but grow at a moderate rate, with an increase of around 6% to 8%.
**Supply Factors Remain Limited**
In terms of supply, 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 However, some outdated small mines may be shut down, keeping the overall growth of production capacity stable. The expansion of coking coal production remains limited, and the growth in railway transport capacity has slowed, leading to potential bottlenecks in certain regions.
Moreover, the rising value of the renminbi has increased export costs, reduced long-term contracts, and limited the scope for further coal exports due to continued state-controlled export policies. As a result, coal imports are expected to remain high, maintaining a net import position.
**Coal and Coking Coal Prices Show Mixed Trends**
While the average coal price is expected to rise in 2008, thermal coal prices will see only a slight increase, facing significant challenges. In contrast, coking coal prices are expected to rise more sharply.
Thermal coal price increases are constrained by several factors: rising inflation, government reluctance to support price adjustments, uneven profit distribution in the power sector, and uncertainty around the implementation of coal-electricity linkage policies. For example, the recent adjustment of feed-in tariffs in the Beijing-Tianjin-Tangshan Power Grid reflects a move toward regional coal-electricity coordination, which could signal future changes.
Coking coal, on the other hand, is a scarce resource, and its price is largely determined by supply and demand dynamics. Since late 2006, coking coal supply has been tight, and this situation is expected to continue in 2008. Increased production costs in Shanxi, the main producer of coking coal, will further push prices higher.
Internationally, coking coal contract prices are expected to rise by more than 30% in fiscal year 2008, creating a favorable environment for domestic price increases. Based on these factors, coking coal prices are expected to climb sharply, with an estimated increase of 15% to 20%.
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