China grows to become important player in global coal market

China grows to become important player in global coal market

Cindy Sui, Agence France-Presse, Taiyuan, China

China, the world's biggest coal producer, is beginning to
wield its influence as a major coal-exporter to secure a dominant
position in the sector and dictate world prices, industry sources
said.

The recent row between China and the European Union over
Chinese restrictions on exports of coke -- a coal product crucial
for making steel -- underscores the clout China has gained in a
matter of years and the world's increasing reliance on its coal,
experts said.

By cutting exports this year, China drove up prices, putting
European and Japanese steel makers dependent on Chinese coal in a
serious predicament.

The issue was resolved on Friday with Beijing agreeing to keep
coke exports to Europe at no less than last year's level, but
experts said the coke industry serves as a good example of how
much influence China has gained in the market.

"They pretty much dominate the market because of their cost of
production, which no one can even come close to," said Michael
DeVisser, manager of Asset Protection Trust Ltd., a Switzerland-
based company which represents a consortium of top European steel
manufacturers.

China began exporting coke in large amounts in 1993 after
improving quality. By 2001, it had become the largest global coke
exporter, now accounting for 60 percent of world trade.

The United States and countries in Europe shut their cokeries
about five years ago and began buying Chinese coke when its
production costs fell far below that of their coke.

"They have the best coal deposits for making coke. In
conjunction with the cheapest labor, they have the cheapest
coke," DeVisser said.

Environmental concerns were also a factor.

"Making coke creates a lot of pollution. European countries
want blue skies, so they look to China," said Chen Xingdong,
chief China economist for BNP Paribas Peregrine.

This year, China began capping coal export quotas because it
said it wanted to preserve supplies for its booming steel and
power industries. That reduced global supplies and prices
skyrocketed to US$450 a ton from just over $100 last year.

Industry experts said the case highlights the increased
leverage China has in global trade.

Coke is a small part of bilateral trade, but a crucial
commodity. China likely wanted to pressure Europe to grant it
market economy status, which it had been long seeking as a
defense against dumping allegations, Chen said.

DeVisser said China could be manipulating World Trade
Organization (WTO) rules, which allow export restrictions if
there is a domestic shortage.

"China knows if it restricts exports, the prices will go up,"
DeVisser said. "My impression is they did have enough coke."

Unless China, which joined the global trade body in 2001,
fully commits to following WTO policies and follows market rules,
buyers fear they will be at the mercy of its whims again.

"That'll be fine so far this year, but next year, they will
make another move," DeVisser said. "We've seen what it's done in
the last eight months -- the price of these materials can just
fluctuate at anytime."

But China's huge appetite as the world's biggest coal consumer
is leading to genuine fears of a shortage for the domestic
market.

The country depends on coal for 75 percent of its energy and
needs coal to make steel for its booming construction industry.

Increased mining, however, is raising worries of a rapid
depletion in supplies.

In response, China has begun reducing exports in recent years.

China last year produced 1.7 billion tons of coal and exported
just 93 million tons, or around five percent, even though it is
one of the top two coal exporters in the world. Production
increased 54 percent from 1999 to 2003.

It is the number one coke exporter, but the 14 million tons it
sold last year comprised just seven percent of its production.

Fear of diminishing supplies appears to be one of the last
things on the minds of mine bosses. With high demand, they are
eager to rake in profits.