Regional Coal: China may halt overinvestment in coal sector
Thursday, May 26 2005 - 07:29 AM WIB
Reflecting the concerns of a nation where mass deaths in the mining industry happen with appalling regularity, the China Daily said the investment drive is concentrated in small operations which have the poorest safety record.
"The investment in coal mines is overheating. The spending spree should be cooled down," said Guo Yuntao, director of China Coal Industry Development Research Center.
In the first quarter of 2005, investment in the coal industry nearly doubled, surging 86 percent from a year earlier to 7.6 billion yuan (920 million dollars), according to the newspaper.
Rampant investment is especially serious in small coal mines run by townships and counties.
"Many of these coal mines have skipped the necessary government approvals before starting construction," Guo was cited as saying.
These smaller local coal mines account for nearly 40 percent of China's total coal output -- and also for a disproportionate number of the accidents.
Just last week, at least 45 workers were killed in north China's Hebei province when a blast ripped through a medium-sized coal mine that had previously been the scene of a large-scale deadly accident.
However, just as important as the safety issue is concern about lack of efficiency among the small coal miners, according to analysts.
"They want better efficiency in terms of recovery of the coal," said Graham Wailes, a Sydney-based coal analyst with AME Mineral Economics.
"Some of the small miners just take the best of the coal without being fully capable of exploiting all the resources," he said.
Investors are gambling that high coal prices, which have increased more than 50 percent in the past two years, will last.
However, they may be deterred by government data suggesting demand for coal will gradually decrease.
The government is striving to rein in rapid development in coal-guzzling industries such as cement, steel, and coal-fired power plants, which in turn will force growth in the demand for coal to slow, the China Daily said.
Even so, a Chinese government order to cut investment would come at an awkward time after months of serious power shortages.
In the first three months of the year, 26 of China's 31 provinces, autonomous regions and municipalities experienced brownouts, the China Daily said.
Analysts debated if this might be more attributable to bottlenecks in the rail system carrying the coal rather than insufficient production at the mines.
"Some of this may have been due to problems with transportation," said Wailes. "They may have produced the coal but can't get it to the power stations."
China's thirst for energy may start to flatten out as early as this year, predictions suggest.
China's coal consumption is expected to increase by six percent in 2005 to 2.1 billion tonnes, slower than last year's growth of 12 percent, according to the China Coal Industry Association.
If that continues, when new coal projects start operation over the coming years producers may find a production glut and falling prices.
"It would be a disaster should the industry experience significant excess production," said Li Chengyi, the secretary general of Shanxi Coal Industry Association.(*)