New Chinese Coal Mining Regulations Mean Opportunity for Multi-National Producers

by: Kelvin Schulle

Due to the rising number of accidents in its coal mining industry, the central government of China has come out with a new policy to tackle the problem. As a result, the number of small and medium size mining companies will be eliminated due to the high rate of accidents, leaving only companies whose capacity exceeds 90M tons annually. The problem now is that this policy will also cause metallurgic (met) coal production to drop significantly as over half of the met coal in the nation is from Shangxi province.

The Chinese government is facing a difficult decision as the nation's steel demand is rising, while met coal production is dropping. Analysts expect a steady rise in domestic steel products as its economic growth becomes self sustainable in 2010 and green energy industry expansion will add more demand to steel production. The wind and solar farm projects will become the new driving force behind the steel industry. The reality may force China to import more met coal from Australia and the US. Companies such as Alpha Natural Resources (ANR), Massey Energy (NYSE:MEE) and Rio Tinto (RTP) are already selling met coal to China and strong demand is seen in 2010. Alpha Natural Resource is planning to expand production in its Australian mines to meet rising demand from China.

Disclosure: Long KOL, which includes ANR, MEE, and CNX among its holdings.