AAA Minerals Int’l China’s coal supply/demand and their impact on international coal market George Guanghua Liu AAA Minerals International

AAA Minerals Int’l Coal facts of China (1) Raw coal output in 2004: 1.96 BMt Raw coal output in 2004: 1.96 BMt Coal consumption in 2004: 1.8 BMt Coal consumption in 2004: 1.8 BMt Recoverable reserves: 1,000 BMt Recoverable reserves: 1,000 BMt Coal exports in 2003: 93 MMt (80 MMt in 2004) Coal exports in 2003: 93 MMt (80 MMt in 2004) 67% of energy consumption from coal 67% of energy consumption from coal

AAA Minerals Int’l Coal facts of China (2) 28,000 Coalmines, but 95% are small mines (< 30,000 tpa; 28,000 Coalmines, but 95% are small mines (< 30,000 tpa; Backward mining methods, only 40% has been mechanized; the overall recovery of coal is < 30%; Backward mining methods, only 40% has been mechanized; the overall recovery of coal is < 30%; > 65% of coal mines are operated over their capacity; > 65% of coal mines are operated over their capacity; Yearly increase of gangue-pile is over 130 MMt; Yearly gas mission from mines is over 12 BM³; Yearly increase of gangue-pile is over 130 MMt; Yearly gas mission from mines is over 12 BM³; About 5,000 miners killed by accidents every year. About 5,000 miners killed by accidents every year.

AAA Minerals Int’l Contents 1. Review of Chinese coal production and consumption; 2. Outlook for Chinese steaming coal supply and demand; 3. Outlook for Chinese coke supply and its demand; 4. Tendency of Chinese coal export and import; 5. Conclusions of their impacts on international market. Contents 1. Review of Chinese coal production and consumption; 2. Outlook for Chinese steaming coal supply and demand; 3. Outlook for Chinese coke supply and its demand; 4. Tendency of Chinese coal export and import; 5. Conclusions of their impacts on international market.

AAA Minerals Int’l Topic One: Review of Chinese coal production and consumption Chinese coal supply and demand underwent cyclic changes from middle 1970s; the recent cycle began in year of 2000; Chinese coal supply and demand underwent cyclic changes from middle 1970s; the recent cycle began in year of 2000; The changes are mainly caused by the government’s policies and GDP growth; The changes are mainly caused by the government’s policies and GDP growth; The influence of international coal market is limited. The influence of international coal market is limited.

AAA Minerals Int’l Raw coal output from 1975 to 2005 (Bt) from 482 MMt in 1975 through 1,374 MMt in 1996 to 998 MMt in 2000 from 998 MMt in 2000 to BMt in 2004

AAA Minerals Int’l Domestic consumption of raw coal in China from 1980 to 2004 (BMt)

AAA Minerals Int’l Comparison between domestic raw coal Comparison between domestic raw coal output, consumption and GDP 1980 through 2004 (BMt) (BMt) GDP * * * * * * * * * * * *

AAA Minerals Int’l Overall consumption mix of Chinese coal between 1995 and 2004 (MMt) 30-55% 10-15%

AAA Minerals Int’l Coal consumption mix of China in 2003 and 2004 (MMt)

AAA Minerals Int’l Topic Two: Outlook for Chinese thermal coal Outlook for Chinese thermal coal supply and demand Thermal coal in China is not only used for power generation, but also for industries and household as fuel and raw stuff; Thermal coal in China is not only used for power generation, but also for industries and household as fuel and raw stuff; Thermal coal demand increased sharply in the last 4 years, as a result of dramatic growth of power output. Thermal coal demand increased sharply in the last 4 years, as a result of dramatic growth of power output.

AAA Minerals Int’l Chinese thermal coal supply and demand Insufficient transportation and higher market coal prices are main causes resulting in power shortfall overall in China in the past. Insufficient transportation and higher market coal prices are main causes resulting in power shortfall overall in China in the past. Over-capacity-operated mines can not take pace with the continuous high growth rate of power coal demand; so more imported coal may be necessary in the future. Over-capacity-operated mines can not take pace with the continuous high growth rate of power coal demand; so more imported coal may be necessary in the future.

AAA Minerals Int’l Power generation consumes 30 to 55% of total coal % Domestic raw coal output and consumption

AAA Minerals Int’l Output history of power generation of China; the coal-fired power is 80% of the total TWh

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AAA Minerals Int’l Outlook of domestic power coal demand in next 15 years, in comparison with raw coal demand (BMt)

AAA Minerals Int’l Topic Three: Chinese coke supply and demand China is the biggest coke producer, exporter and consumer of the world; China is the biggest coke producer, exporter and consumer of the world; Both China’s and world’s demands for coke speeded China’s coke production; Both China’s and world’s demands for coke speeded China’s coke production; Coke exportation are discouraged by increasing domestic demand, decreasing coking coal resources and shut down small coking ovens. Coke exportation are discouraged by increasing domestic demand, decreasing coking coal resources and shut down small coking ovens.

AAA Minerals Int’l Chinese coke output is a big boy in the international coke market. In 2003 it made up 46% of the world ’ s total coke production. Chinese coke output is a big boy in the international coke market. In 2003 it made up 46% of the world ’ s total coke production.

AAA Minerals Int’l Historical coke outputs of China and world (MMt)

AAA Minerals Int’l Historical coke exports of China and the rest world (MMt)

AAA Minerals Int’l Met. coal supply from 1995 to 2005 (MMt) --- Met. coal resources is insufficient in China

AAA Minerals Int’l Outlook of Chinese met. coal/coke supply/demand Domestic met. coal supply can meet the increasing demand in next 5 years, because: Domestic met. coal supply can meet the increasing demand in next 5 years, because: 1) total coking capacity will increase from 195 MMt in 2004 to 240 1) total coking capacity will increase from 195 MMt in 2004 to 240 MMt at end 2006, MMt at end 2006, 2) new coking coal mines will begin to produce in next years, and 2) new coking coal mines will begin to produce in next years, and 3) growth rate of met industry is declining. 3) growth rate of met industry is declining.

AAA Minerals Int’l Outlook (continued): Coke production in China tends to reduce its growth rate, because: Coke production in China tends to reduce its growth rate, because: 1) more small ovens will be shut, 1) more small ovens will be shut, 2) demand tension began to relieve, 2) demand tension began to relieve, 3) coking coal supply remains tight as resources & transportation problems. 3) coking coal supply remains tight as resources & transportation problems. Coke output may reach 210 MMt in 2005.

AAA Minerals Int’l Outlook (continued): Coking coal and coke exports will continue to reduce, as the domestic demand and the increasing capacity of international coke makers. Coking coal and coke exports will continue to reduce, as the domestic demand and the increasing capacity of international coke makers. China may import gradually more high quality coking coal. China may import gradually more high quality coking coal.

AAA Minerals Int’l Topic Four: International coal trade of China International coal trade of China * China is the second largest coal exporter: MMt

AAA Minerals Int’l China’s coal export increased rapidly from 2000 to 2003, but began to decline in 2004; more coal importation may occur in the coming years. These changes strongly affect the world coal market. MMt

AAA Minerals Int’l * The main importers of Chinese coal are Japan, Korea, Taiwan, Europe, India and other SE Asian counties. Destinations of Chinese exported coal in 2004

AAA Minerals Int’l Exported coal types of China in 2004 (steaming coal is 80%, anthracite 7%, coking coal 6 %).

AAA Minerals Int’l Outlook of import and export Export will gradually decline; 2005 maintains the same level of 2004 at 80 MMt. Export will gradually decline; 2005 maintains the same level of 2004 at 80 MMt. Import tends to increase, mainly by south and south-eastern China. Import tends to increase, mainly by south and south-eastern China.

AAA Minerals Int’l Topic five: Conclusions Topic five: Conclusions 1) Growth rate of raw coal output will slow down in next two years, then output will decline as a result of reducing mining capacity. 1) Growth rate of raw coal output will slow down in next two years, then output will decline as a result of reducing mining capacity.

AAA Minerals Int’l Coal output capacity could not meet the demand after 2006; more mine investment and coal importation are the solution BMt

AAA Minerals Int’l Conclusions (continued) 2) Growth of domestic demand for both coking and steaming coal will slow down in late 2005 and 2006; 2) Growth of domestic demand for both coking and steaming coal will slow down in late 2005 and 2006; 3) Coal export is declining and import is increasing, which results in the changes of world coal market patterns; 4) Chinese coal market is still under control of the government, especially for power coal market and exportation.

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