"We want to better utilize our coal resources to sell higher-priced products,'' Yan told reporters at the Ningdong coal mining center. "It makes better economic sense now to sell fuels instead of just raw coal.''

Construction of the two projects may start at the end of 2008, Yan said. The National Development and Reform Commission, China's top economic planner, has approved the plans, she said. Ningxia, China's sixth-largest coal production base, has proved coal reserves of about 31 billion tons. Potential reserves may total 202.5 billion tons.

Shenhua Ningxia aims to have the capacity to process 10 million tons of coal a year into fuels by 2020 and may build two more such plants by then, Wang said.

Credit Suisse Group, Switzerland's second-biggest bank, last week raised its Asian coal price forecasts because of increased demand from projects that will turn the commodity into liquid fuels.

Record Oil

Coal prices in 2010 may average US$45 a ton, compared with an earlier projection of US$39, Credit Suisse's Hong Kong-based analyst Trina Chen and Shanghai-based Mick Mi wrote in a July 6 report.

Crude oil futures on the New York Mercantile Exchange have risen 25 percent in the past year and reached US$75.78 a barrel on July 7, the highest since New York trading began in 1983. Coal liquefaction plants are viable as long as oil trades at US$30 a barrel, Credit Suisse said.

Shenhua Ningxia is building a separate coal-to-chemicals plant at Ningdong, in the province's east, Yan said. The plant, designed to turn 250,000 tons a year of coal into methanol, should be completed at the end of 2006 to start producing methanol early in 2007, she said. The plant cost 1 billion yuan (US$125 million).

The company plans to spend 10 billion yuan on a plant that will turn coal into polypropylene at Ningdong, which is scheduled to start operating in the first half of 2009, Wang said. Polypropylene is a chemical raw material.

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