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Golden era over for coal mines and traders, analysts say

By Ji Beibei (Global Times)

08:06, June 06, 2012

The era of a coal supply shortage in which mines and traders have earned fat profits will come to an end this year, analysts said yesterday, because the sector has seen growing capacity in domestic coal production, a surge in imports and falling demand from power plants.

"The golden era for the (coal) sector that has lasted for a decade will end this year," Li Chaolin, a coal and energy industry analyst at Anbound Consulting, told the Global Times yesterday.

"In the coming months, coal traders are expected to see even lower prices, and cuts in profit margins," Li Chaolin said.

Factors including enhanced capacity at home, increased imports and slumping demand have changed the balance of supply and demand in the sector, he said.

Data from the China Coal Transportation & Sale Society show that China produced 121 million tons of coal during the first four months of 2012, up by 6.5 percent year-on year.

With production expected to begin in new coal mining projects in provinces like Shanxi during the coming years, the capacity of the sector will climb further, and peak in 2014, the 21st Century Business Herald quoted an unnamed analyst as saying.

In 2011, China surpassed Japan to become the world's largest coal importer, with 182 million tons of coal imported for the whole year, up by 11 percent year-on-year.

As "global demand for coal has weakened, dragged by economic woes, international coal prices have been dropping sharply," Li Ting, an analyst with the Distribution Productivity Promotion Center of China Commerce, told the Global Times yesterday.

Imported coal, which is cheaper than the domestic variety, "appealed to power plants along the coastal regions of China and was something of a blow to domestic coal traders," Li noted.

To make the situation worse, domestic demand for coal is dropping. Total coal stockpiles at key power producers nationwide hit an all-time high of 96 million tons on June 2, according to industrial research portal chinairn.com.

The slide in demand started from the fourth quarter of 2011, against a backdrop of a slowdown in the economy, and the weak demand for coal is expected to last throughout the next few years, analysts said.

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