Government officials have warned of overheating investment in the coke industry, and have pledged to move to shut down polluting, inefficient beehive ovens.

Meanwhile, the government has sought to stabilize domestic supply by discouraging exports.

On Friday, the Ministry of Commerce announced the scrapping of tax rebates for exports of coke - an essential ingredient to make steel - and coking coal - the raw material in the production of coke - starting from today.

Shu Chaohui, an official with the Industrial Policy Department of the National Development and Reform Commission, said approval for construction of new coke plants had been suspended to rein in rampant expansion in the industry.

The government would also release stricter standards for new producers entering the industry in the next two months so as to better control the industry, Shu said.

"The production capacity is growing too fast and the risk of a market glut is looming large," he said last week at the annual meeting of the China North Coke and Chemical Association.

China's coke consumption has been surging since 2002 to feed robust steel production. The current domestic coke price has more than doubled compared with that of 2002.

Strong market demand has spurred coke producers, such as those in North China's Shanxi Province, to rush to raise producing capacity.

At present, 183 coke ovens are being constructed. They will have a combined production capacity of 68 million tons, according to the association.

Capacity of the plants under construction will account for nearly 40 per cent of the current production in China.

And more projects are being planned. Coke production capacity in China will exceed 260 million tons by 2005, accounting for about 60 per cent of the world total, according to Hua Zugui, chairman and CEO of China Coal & Coke Holding Ltd.

Shu said the rapid production expansion was risky since demand for steel is likely to ebb under government pressure to cool down the fever in the steel industry.

Government control of coke exports would also shrink the market for additional production, said Shu.

Hua said excessive expansion would lead coke producers to scramble for coking coal resources, exhausting limited reserves, and pushing up production costs.

Expansion would place greater strain on an already tight transport situation and cause serious air pollution, Hua said.

While working on curtailing the industry's expansion, the government is also moving to crack down on obsolete and polluting beehive coke ovens, which now account for a quarter of China's total coke production.

Inefficient beehive ovens waste coal resources and pollute the environment by emitting coal gas and smoke into the air, while advanced slot ovens use coal gas to process chemicals.

Shu said the commission completed an investigation into beehive coke ovens last month. Nine government institutions then submitted a joint report to urge the State Council to take action to close down the beehive ovens.

On the export front, China will scrap tax rebates for coke and coking coal starting from today to further lessen exports.

Traders said the abolition of the subsidy would push the international coke price even higher as Chinese producers will raise export prices to cover additional costs and maintain profit margins.

China charges 17 per cent value-added tax for coke and 13 per cent for coking coal. Exporters used to get 15 per cent rebates for coke and 13 per cent for coking coal until January this year when China reduced the rebates to 5 per cent for both products.

"The government now sends the message that it does not encourage the export of coke which is polluting and is becoming scarce in resources," said an official from a State trading company for coke products. "In the longer term, the government may even impose additional charges on coke exports."

China cut the coke export quota this year to 9 million tons from 12 million tons last year, a move to satisfy soaring domestic demands.

China's coke exports dropped to 2.3 million tons in the first quarter of this year from 4.1 million tons in the same period last year.

To produce enough coke, China also imported 1.3 millions of coking coal in the quarter, half of the full-year import in 2003.

China is the world's largest coke producer supplying half of the world demand in 2003.

The European Union has complained that China's restriction in exports has led to the coke price on the international market skyrocketing. China and the EU are still negotiating the issue.

(Xinhua News Agency May 24, 2004)