Coal prices still have some room for growth

Policy-based costs have become the main factor directly driving the rise in coal prices.
With the comprehensive compensation for coal mining and sustainable development support policies in place, the cost of coal mining is fully integrated and the external costs are internalized, the price of coal in China will be increased accordingly, and the increase in the price of thermal coal may be significant.
In the first year of the actual marketization of coal prices in 2007, the strength of coal prices will not be short-lived.
The prediction of a surplus of coal and a drop in prices was once again broken. On January 19, the Datong Coal Industry Group planned that the price of electric coal vehicles had risen from 265 yuan to 305 yuan, an increase of 40 yuan, or up to 15%.
According to Liang Dunshi, deputy secretary-general of the China Coal Transportation and Marketing Association, “The national average of tons of coal has risen by about 30 yuan, with an average increase of around 8%.”
On the face of it, there are many factors in the price increase of coal, such as complete costing and increased safety investment. However, the deeper reason is that the national control force will once again exert its force in the “New Deal of Coal” in Shanxi after half a year.
The far-reaching impact on coal prices is the “completely piloted cost” that began in Shanxi.
According to the Shanxi Provincial Coal Industry Bureau, the main reason for the highest increase in coal prices in Shanxi is that the country this year has designated Shanxi as a pilot province for the implementation of the use of coal resources for compensation, and has asked for the comprehensive collection of sustainable development funds, mine environmental governance restoration bonds, and coal mine conversion. Development funds, together with resource compensation fees, mining rights prices, and the extraction of security costs, have increased the cost per ton of coal by 70 to 80 yuan - policy-based costs have become the main factor directly driving the rise in coal prices.
Some analysts pointed out that this kind of policy-induced changes in the rigid cost of coal prices will inevitably cause the price of coal to rise, and this increase will eventually lead to a nationwide increase in coal prices due to the role of pilots.
As a matter of fact, the reform of the national resources product price that is preceded by the Shanxi coal resource tax reform has become a reality. It is understood that the reform plan for resource products prices drafted by the Development and Reform Commission's Price Division - "Opinions on Deepening Price Reform, Promoting Resource Conservation and Environmental Protection" has been approved by the Director of the Development and Reform Commission's office meeting. After continuing to solicit local opinions, It will soon be reported to the State Council.
In the reform of coal prices, the main ideas of the new plan basically applied the experimental content of coal mining in Shanxi, namely, improving the composition of coal costs, adding the acquisition cost of mineral rights, the cost of resource extraction, the cost of ecological environment restoration and treatment, and the cost of safe production. And the cost of exit after resource depletion. At the same time, set up a mining environment guarantee fund and a coal mine conversion production development fund.
Not only that, some of the coal's external costs are also infiltrated into coal prices. Experts from the Energy Research Institute of the National Development and Reform Commission believe that with the comprehensive compensation for coal mining and sustainable development support policies in place, the cost of coal mining will be fully integrated and external costs will be internalized, and coal prices in China will increase, including rising coal prices. It may be more significant.
It is understood that from the beginning of 2006, the Price Division of China Coal Industry Association and the National Development and Reform Commission started the study of the full cost of coal prices. After the trial in Shanxi Province, the trial for the use of resources for compensation has been promoted to more than one third of the provinces and cities in the country. "This means that the promotion of full cost-based coal prices is just around the corner."
Another more intriguing signal is the country's adjustment of the layout of the coal industry.
According to the national and local coal development ideas, the industrial development policy of “build-based, integrated-support” is gradually changing to “integration-based, new-building-assisted”, which means that it is partially included in the statistics of the relevant national ministries and commissions. Or mines under construction may be reduced, and some small ore mines that have long been entrenched in state-owned mines will gradually be incorporated into state-owned mines under the trend of national resource consolidation. Some wells with integration conditions will gradually fade out.
It is understood that in order to eliminate backward production capacity and ensure safe production and total control, the state plans to close 4,861 small coal mines in 2006 and 2007. According to the “Circular on Implementing the Plan to Close Mines in 2006-2007” issued by the Office of the State Council’s Safety Committee, in 2007, 2209 small coal mines will be closed in China. The closure of small and medium-sized coal mines will further reduce coal mines accounting for more than 1/3 of the total. The rate of increase in production has reduced the overall supply.
Relevant data also show that the state-owned mines will continue to increase their share of the future output structure, while production of township coal mines and private mines will gradually shrink with the consolidation of safety. According to the plan, during the “Eleventh Five-Year Plan” period, the proportion of production of township coal mines in China will drop from 38% in 2005 to 21%, while the proportion of state-owned key coal mines will increase from 48% in 2005 to 65%.
At present, large-scale coal companies including Shenhua, China Coal, Yankuang, etc. are trying to monopolize the coal resources in the local area through resource integration. The intensification of this monopoly trend will directly lead to the concentration of coal price discourse. Some coal analysts said that the integration of the coal industry has not only strengthened the control over supply and demand and prices, but also eliminated some small coal companies that once disrupted the market order.
“Furthermore, the increased concentration of industry brought about by consolidation has also provided guarantees for the stabilization of coal prices in the long term.” The analyst pointed out that large coal companies will sign coal-using companies when they have sufficient market supply capacity. Long-term supply contracts to prevent the ups and downs of coal prices.
Although the coal industry ranks among the eleven vigilant overcapacity industries announced by the National Development and Reform Commission, analysts still believe that in the first year of the actual coal price marketization in 2007, the strong coal price momentum will not be a flash in the pan.
An expert from the China Coal Industry Association stated that a loose balance between supply and demand will be the overall trend of the coal industry leading the “Eleventh Five-Year Plan” period. Some analysts predicted that in the next few years, coal prices will not have the capacity crisis that was previously expected, and coal prices will not only show a sharp turning point, but will even have nearly 20% room for growth.

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