China's coal market has returned to a more sustainable position in 2006 following a supply-constrained period during 2003 and 2004. According to the Australian Bureau of Agricultural and Resource Economics, significant changes to electricity market regulations and the increase in generation capacity over the past three years has led to a subsequent rise in demand for thermal coal. However, the reduction in thermal coal exports had resulted from the widening gap between domestic coal prices and international benchmark prices. Demand for metallurgical product also increased in the past five years in response to the capacity expansion in the iron and steel sector. In its September quarter edition of Australian Commodities ABARE said rising investment in coal production and transport links had reduced upward pressure on coal prices in China.
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