The main factors driving the continued rise in coal prices are manifested in the following aspects:
First, the concentration of the coal industry has further increased, and the growth rate of coal production has slowed. This year the coal industry has undergone comprehensive consolidation, with plans to close about 10,000 small coal mines, while in the first half of the year 9,075 coal mines of various types were actually closed. The large-scale closure of small coal mines has to some extent curbed the excessive growth of coal supply. According to statistics, from January to September national coal output was 1,676,741,500 tons, up 11% year on year. The average month-on-month growth rate has slowed: the August increase fell 4.5% from July, and September rose only 1.2% from August.
Second, coal demand has grown rapidly. Since the beginning of this year, the economy and industrial production have maintained a relatively fast growth momentum. From January to September, national thermal power generation, cement output, steel output and chemical fertilizer output grew 16.7%, 15%, 24% and 13.8% year on year respectively. These four items account for more than 80% of domestic coal demand, and their rapid output growth has driven a marked increase in domestic coal market demand. In addition, affected by seasonal factors, the coal market will enter its traditional peak consumption season in the fourth quarter, with coal demand increasing further and the growth rate possibly expanding somewhat.
Third, reform of the paid-use system for coal resources has sharply increased coal production costs. Since the beginning of this year, China has carried out reform of the paid-use system for coal resources in major coal-producing provinces and regions such as Shanxi and Inner Mongolia, including raising the coal resource tax, increasing special safety production fees, establishing environmental governance and restoration deposits, and setting up a sustainable development fund for coal mine conversion. Incorporating the resource cost of coal mining, environmental cost, safety cost, coal mine conversion cost and transport cost into current coal costs has to some extent increased the cost pressure on coal enterprises, thereby providing strong support for coal prices to remain at a high level. According to statistics, from January to October the average production cost per ton of coal for key state-owned coal enterprises in Shanxi Province was 185.46 yuan, up 21.5% year on year.
Fourth, relatively tight railway transport capacity has pushed coal prices up. In the fourth quarter, the basic situation in which tight railway transport capacity constrains coal supply will be difficult to change fundamentally, especially as some provinces and regions such as Shanxi, Shaanxi and Ningxia are constrained by tight railway transport capacity, which has to some extent driven up coal prices in sales regions.
Fifth, the impact of rising coal prices on the international market. Affected by factors such as the sharp climb in international crude oil prices and countries in the Northern Hemisphere entering the winter coal storage season, international coal prices are still likely to rise strongly in the coming months, which will to some extent support the rise in domestic coal prices.
