The National Development andReform Commission of China(NDRC) released on August 27a report on the first-half operation antthe second-half expectation of the coalindustry. The coal industry is predictedto have a consecutive balance of sup-ply and demand this year with a lessstrained supply in the second halt.

Fast growing production， transport，and demand

This year， due to faster growinginvestment and demand coupled withwider increase in transportation capac-ity， the coal turnout is rebounding.

The fixed-assets investment in theindustry saw rapid increase in the firsthalf. In particular， the investment inreal estate， a strong momentum to theincreasing coal demand， jumped 28.5%，6.7 percentage points higher than thefull-year of 2003. In this regard， in thefirst half the domestic coal consumptionis estimated at roughly 1.263 billiontons， leaping about 12.2%， more than 2percentage points higher than last year.

From January to June， 599 milliontons of coal was transported by trains，rising 10.1% year on year. The rise is 3.8percentage points higher than the full-year of 2006 but still slower than that inthe coal production and demand. RailTransportation strain still reins in coalsupply， though more slightly than before.

Rapid rising production cost

According to the National Bureauof Statistics of China， in the first fivemonths of this year China's coal industryachieved a profit of RMB 30.86 billionyuan， increasing 43.1% year on year.

Despite the profit increase， the wholeindustry began to incur a negative influ-ence of the excessively rapid growth inproduction cost， which has pulled downthe profit. In May， coal companies un-der the aegis of the central governmentsuffered a year-on-year profit decline of5.2%.

NDRC: Less strained supply in 2ndhalf

In the second half， China's coal de-mand will continue to go up rapidly at aslower pace. The fairly rapid growth incoal supply is bringing the pressure ofoversupply. In recent years， the coal pro-duction capacity has kept a rapid growth.From 2002 to 2006， the new capacityof about 666 million tons had been putinto operation. In 2007 and 2008， morecapacity will be brought into operation，which will lead to a faster increase incapacity than in demand.

Rail transportation is expected totake a looser control of coal supply inthe second half， but the latter can hardlybe free of the control entirely.

The NDRC predicted a less strainedcoal supply for the second half than forthe first six months.

CCTSS: Coal prices to rise furtherin 2008

Next year， China will possibly wit-ness a new round of coal price increase，pointed out China Coal Transporta-tion Sale Society (CCTSS). Thebalance between supply and demandwill change in the coal market in 2008.There will likely be a coal shortagein the Eleventh Five-year Plan period(2006 to 2010). At the end of 2010， theshortage will reach approximately 100million tons.

CCTSS attributed the shortage totwo factors.

Firstly， the state's macro-controlof the coal industry will rein in coalsupply then. It has put a clamp on newprojects in the industry， which is saidto have potential overcapacity. Con-sequently， the fixed-assets investmentincrease in the industry has started toslow down obviously.

Secondly， the Ministry of Land andResources issued a circular in Februarythat no approval would be given to newapplication for coal exploration right inorder tO avoid overhed investment incoat explorafion， Which usually resultsin overcpacity.