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China's top economic policy planning body yesterday said it would come up with a package of industry policies no later than April to further regulate the fragmented industry of coke, a raw material used to produce steel.

 

The new policies aim to enhance industry consolidation and eliminate old facilities that waste energy in sectors, which also include steel, calcium carbide and aluminium production.

 

Last year, the capacity of coke production exceeded demand by as much as 100 million tons.

 

Industry analysts said the new regulation, if carried out effectively, will help boost the coke prices because of a drop in production.

 

"We will introduce these regulatory policies soon after the sessions of National People's Congress (NPC) next month," an official in charge of industry policies from the National Development and Reform Commission (NDRC) yesterday told China Daily, asking not to be named.

 

China's NPC usually sits for one to two weeks annually, where officials and business leaders gather to canvass their opinions. The meeting starts from March 5 this year.

 

By the end of last year, China had 1,480 coke producers, boasting a total production capacity of 300 million tons, but the demand only stood at roughly 200 million tons, Hua Zugui, president of China Coal & Coke Holdings Ltd, said.

 

Still new coke facilities producing as much as 30 million tons are also being planned across the country, Hua said.

 

The over-capacity has led to plummeting coke prices, causing many coke producers in China to complain about losses due to squeezed margins.

 

An official from China Coal & Coke, who spoke on the condition of anonymity, said the FOB (Free on Board) price dropped to US$130 a ton from US$450 in 2004.

 

Coke producers, including China Coal & Coke, gathered in Beijing in December last year, calling for the government to tighten controls over the fragmented sector. They also talked about measures to raise coke prices, inside sources said, without elaborating.

 

As much as 80 percent of coke production is used to make steel, another sector that industry authorities have vowed to cut production of.

 

Luo Bingsheng, vice-chairman of China Iron and Steel Association, last month said the country would get rid of old steel-making facilities with a capacity of 100 million tons within the next two years.

 

Hua predicted China's steel production was expected to be somewhere between 385 to 400 million tons this year, which would need up to 232.8 million tons of coke.

 

The NDRC official said the government is encouraging the set-up of large-scale coke producers, and closing small, inefficient workshops.

 

"By doing so, we aim to enhance the technologies and energy efficiency in the coke sector," the unnamed official said.

 

There will be many M&A (mergers and acquisitions) opportunities in the coke sector, boosted by the new policies, he said.

 

The policy planner last year introduced a series of regulations to lift the threshold for coke producers. The NDRC official yesterday said a major proportion of China's small coke producers had been shut down so far, accounting for about one-third of the country's total coke production.

 

He said the government is also encouraging large steel makers to acquire coke production facilities.

 

"It is not a major investment for a steel company, but the combination of the two sectors will have great synergy effects," the official said.

 

A senior analyst with the nation's think tank, the State Council Development Research Centre yesterday said the government should adopt more market measures such as fiscal policies, rather than the rigid government mandates, to effectively adjust the industrial structure.

 

"Last, but not least, the government should provide transparent the reliable industry information to steer new investment in a particular sector," the analyst said.

 

Overlapped investment in areas such as steel and coke, to a great extent, was caused by the government's lack of adequate information service, he added.

 

(China Daily February 15, 2006)