While China, an importer of enormous amounts of iron ore, is doing its utmost to avoid a crippling price rise for that particular commodity, it is also the world’s largest coal miner and many here would be quite happy to see its price shoot for the moon.
 But price hike or no price hike, China’s coal future is facing difficulties.
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The 2008 Sino-Japanese negotiations on coal prices have begun. This year, four major Chinese coal miners, Shenhua Group, Chinese National Coal Group, China Minmetals and Shanxi Coal Import & Export Group, will form a joint panel to negotiate with the Japanese the price and volume of the 2008 supply contract for thermal coal and metallurgical coal.
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Since the beginning of this year, international prices, especially the Australian spot coal price, have risen sharply, and analysts believe any Sino-Japanese agreement will have to reflect market realities. The Australian thermal coal price, which had been $68.95 per ton in September 2007, popped up to $130.95 per ton on February 21, 2008.
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Previous negotiations haven’t gone smoothly. Negotiation disputes between the two sides seem almost inevitable. Last year, after many rounds of talks, the two parties agreed on a 30% hike in the price of thermal coal, but differences on the price hike range delayed the signing of the final agreement until the end of May.
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The annual coal negotiations between Australia and Japan are also going to affect the Sino-Japanese discussions, and the results of these two sets of negotiations will carry global influence. China’s disastrous winter, floods in Australia and supply disruption in South Africa will all boost the price of Asian coal in the short term. And, according to Credit Suisse, a Swiss bank, a thermal coal supply shortage and growing production costs will maintain high price levels in the long term. It is predicted that the 2008 benchmark (the price at Australia's Newcastle port) will reach $120 per ton, while in 2009 and 2010 it wll still be at $100 per ton.
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China’s large coal miners all expect a significant price hike and predict the Sino-Japanese and Australia and Japan negotiations will decide the volume and price of thermal coal and metallurgical coal exports.
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But a boost in the price of coal will not solve the problems facing China, which are two-fold. First, a price hike for coal exports will affect the domestic coal price, jacking up the costs of power suppliers, among others, and stoking the inflation which has become a serious dilemma for Chinese economic policy makers.Â
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Second, due to China’s growing need for energy and the rising international oil price, lately over $110 per barrel, China now burns much more coal. As a result, China’s coal exports are expected to decrease, to the extent that China will become a net coal importer.
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A report by the National Development and Reform Commission predicts as much. Affected by a slowdown in railway transport capacity growth, the effective domestic coal supply is estimated to fall short of need and coal imports will rise.
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According to operation figures coming from China’s top miner, Shen Hua Group, its commercial coal production and sales volume were 14.8 million tons and 18.9 million tons, respectively. Of that total, exports accounted for only 1.6 million tons, a drop of 11.1% over the same month last year.
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In 2007 China exported a total of 53.17 million tons of coal, a fall of 16% over the previous year. During the first quarter of 2007, China once was a net coal importer. With the snowstorms in February, 2008, came a serious domestic coal shortfall and the government banned coal exports. China’s total coal exports in February dropped 28.9% over the same period last year.
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China Customs says that with the government shutting down more illegal and insecure coalmines, total coal production capacity is actually slipping while, with domestic demand continuing to grow sharply, China’s coal imports are increasing. The government has had to cut tariffs on coal imports.
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China used to be the biggest coal exporter to Japan and Korea. In 2003 its net coal exports reached 82.931 million tons. In 2008 Korea plans to triple its coal import from South Africa to offset influence of China’s decreased coal exports.