China’s coal industry heading for perfect storm
Persistent supply shortage exacerbated by the government's aggressive goal of cutting excess capacity
China, the world’s largest coal producer, is stuck between a rock and a hard place with shortages of the fuel exacerbated by the government’s aggressive goal to cut excess capacity.
The China National Coal Association predicted at its third quarter review forum on Tuesday that periods of supply shortages will likely occur across the northeast, southwest, and central regions due to a fall in hydroelectric power generation, inadequate coal stocks across the nation, and a congested railway network.
Insiders says that the National Development and Reform Commission (NDRC), the country’s national planning agency, is trying to address the supply and demand imbalance.
It has summoned senior managers from China Shenhua, China Coal, Shanxi Coking Coal and 22 other large producers to come up with a solution to the supply shortage across several regions.
The commission has requested accelerated production in the more advanced mines and asked the sector to ensure an orderly expansion of supply to stabilize surging market prices.
However, coal companies are reportedly reluctant to increase output as a majority of the country’s mines are still losing money and it will take time to recoup losses incurred in recent years.
China has seen output in the first three quarters fall 10% year on year despite a recovery in demand since July, as highlighted by the NDRC.
This has resulted in a surge in coal prices, as witnessed at the major coal hub of Qinhuangdao where they have risen 56% since the start of the year.
Analysts expect the arrival of winter to further push up coal prices as supplies remain relatively tight despite the central government’s efforts to boost production.
The NDRC said on Tuesday that the removal of excess capacity in the coal industry has already exceeded 80% of this year’s target.