China, the world's largest coal producer and consumer, suspended the granting of coal exploration rights to avoid excess production capacity.The halt will last until the end of 2008, the Beijing-based Ministry of Land Resources said in a statement on its Web site.
Only "key coal mine projects" approved by the State Council, China's cabinet, and those granted special exploration funds may seek exploration rights, it said.
China, which burns coal to generate two-thirds of its electricity, may have 100 million tonnes of excess coal production capacity next year, the China Economic Information Network said in November. The suspensions may bolster coal prices during 2008, said analyst Han Yong.
"This is a big boost to the coal industry," Han, a Shanghai-based analyst with China Securities said.
" It also shows that the government is trying to promote sustainable development of the industry and protect the nation's strategic reserves."
The move aims to "avoid overheated investment in coal mine exploration, which might cause capacity surplus, and to stabilize coal production," the ministry said in its statement.
Gains in the nation's spot coal prices are likely to be limited this year because of increasing supply, Han said.
"We are more optimistic about coal prices in the second half of next year, when these policies start to have an effect on the market," he said.
China's coal producers charged domestic power companies as much as 10 percent more for the fuel under one- year contracts agreed earlier this year.
Prices will rise in 2007 because of increasing output costs, including resource taxes, costlier raw materials and spending on upgrading at pits, Yang Xianfeng, secretary general of the China Coal Transport and Distribution Association, said in December.
Accelerating expansion in coal output may endanger the country's efforts at improving mine safety, Li Yizhong, head of the State Administration of Work Safety, said.
To improve a woeful mine saftey record, China planned to close 4,861 dangerous and illegal coal mines that flout work safety rules during 2006 and 2007, said Zhao Tiechui, director of the State Administration of Coal Mine Safety. The nation closed 5,931 such mines in 2005, accounting for 25 percent of the country's total.
China's coal production rose 8.1 percent to 2.33 billion tonnes in 2006.
The nation's coal demand may rise to 2.6 billion tonnes in 2010, according to the 11th five-year outlook for the coal industry published by the National Development and Reform Commission. BLOOMBERG
