Chinese experts have called for cooling down investment in the coal sector to avoid prices tumbling, although the country faces chronic power crunch and stretched coal supply.
"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, at the China Energy Strategy Higher Level Forum at the eighth China Beijing International High- Tech Expo on Wednesday.
The Beijing-based English-language daily newspaper China Daily Thursday said the warning came as many coal mines and investors are pouring billions into expanding collieries and build new pits.
Investors are gambling on the longevity of strong coal prices, which have increased more than 50 percent in the past two years, the report said.
The fixed-asset investment in the coal sector surged over 86 percent year-on-year in the first quarter to 7.6 billion yuan (918 million US dollars). The figure is much higher than the average investment growth of 22.8 percent among all industries.
Rampant investment is especially serious in townships and county-owned coal mines which account for nearly 40 percent of China's total coal output.
Capacity expansion goes against the government's plan to gradually cut the output of small, inefficient mines, said Guo.
Meanwhile, he said China needs additional coal production capacity of 50 million tons this year, and 500 million tons by 2010 to meet the increasing demand.
But Li Chengyi, the secretary general of Shanxi Coal Industry Association, also warned that if the current over investment continues, a production glut is almost inevitable.
The government is making efforts to put the brakes on rapid development in coal-guzzling industries such as cement, steel, and coal-fired power plants, he said.
"It would be a disaster should the industry experience significant excess production," Li said.
China's coal consumption is expected to increase by 6 percent this year to 2.1 billion tons, slower than last year's growth of 12 percent, according to the China Coal Industry Association.