Coal Price Hike Influences Downstream Sectors     

The supply shortage of coal in China has recently led to a constant price rise. The price rise of coal has affected the coal mining sector and downstream sectors.
   The coal price in Qinhuangdao Port has kept on an increase for the eleven consecutive weeks up to July 21st and the highest price reached RMB1 080 per ton, doubling the price in early 2008. In spite of this, with supply shortage in market, the coal price still has a considerable space for further increase.
    Investors in other sectors are looking for chances in the coal business. Many house-building players have turned to the coal mine business. Attracted by the sustained brisk price rise of coal, private capital and foreign capital are flowing towards the development of coal mines.
   Coal chemical, chemical fertilizer, cement and power sectors are also affected by the coal price rise. The investment risk for the coal chemical sector is showing an increase and some investors have slowed down their speed in constructing new projects.
   According to a senior executive from Xin'ao Group Co., Ltd., Xin'ao has met with five major challenges in the development of the coal chemical business, i.e. water resources, transportation, environmental protection, coal resources and technology. "It is believed that other firms faced with similar challenges."
   "Coal is still an important raw material for the chemical sector. Chemical fertilizer (producing urea and ammonium phosphate) and coke sectors are influenced by the coal price," said a director of China Petroleum and Chemical Industry Association. "Take urea for instance. Coal cost accounts for 50% - 60% of urea production cost. The price of urea in China has recently increased from RMB1 700 per ton in January to RMB2 300 per ton in July." Due to the restriction imposed by the government on the price rise of chemical fertilizers, some chemical fertilizer producers have to suspend production.
    An expert suggests to leave the price of chemical fertilizers to market. Otherwise the production suspension in many chemical fertilizer enterprises will likely affect the supply of chemical fertilizers and the grain production.
   In additional, the price of cement in a few areas in China increased greatly. According to a data by the Ministry of Commerce, the domestic average price of cement in June was 3.12% higher than the price in May, driven mainly by the price rise of coal.