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 EU 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 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 US 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 tonne from just over US$100 last year.
Industry experts said the case highlights the increased leverage China has in global trade.
"I personally believe China was trying to use coke as a bargaining chip," Chen said.
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.
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.
Increased mining, however, is raising worries of a rapid depletion in supplies.
"They have 50 more years in Shanxi province before they deplete their mines," DeVisser said, referring to the northern province which has a third of China's coal deposits.
In response, China has begun reducing exports in recent years.
China last year produced 1.7 billion tonnes of coal and exported just 93 million tonnes, or around 5 percent, even though it is one of the top two coal exporters in the world.
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