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Coal firms seek output cut as prices fall

By Si Tingting (China Daily)
Updated: 2008-11-26 09:46

Coal prices have fallen dramatically in China due to the global economic downturn and dwindling domestic demand.

Analysts and traders are now warning producers to cut production so that the coal surplus does not drive prices down further.

Coal prices at Qinhuangdao port, China's largest coal port, dropped by 25 percent over the past two weeks and coal stockpiles have risen to a record 9 million tons.

Statistics from China Coal Transport and Distribution Association showed that steam coal over 5,500 kilocalories dropped to 570 yuan per ton on Monday.

"The drop is much more dramatic than we expected," said Huang Shengchu, president of the Beijing-based China Coal Information Institute.

"Originally, we thought winter heating would ease coal demand weakness caused by the global financial crisis. But now it seems, with the impact of the financial crisis looming larger in China - the closure of many export manufacturers, a lackluster real estate market and the halting of infrastructure projects, there will be significant contraction in demand for thermal coal for power generation as well as metallurgical coal for steel production."

Huang said the winter for China's coal manufacturers has just come. "I believe they will experience a worse chill next spring," he added.

The coal producers can only count on the government's 4-trillion-yuan economic stimulus plan to initiate more infrastructure projects, which will boost steel and electricity demand, said Huang.

According to Huang, coal ports and power plants are now telling coal producers not to send them more coal, as large stockpiles will be accompanied by more storage costs.

China's coal output in 2008 is expected to reach 2.7 billion tons, but Huang believed China could not consume all that coal this year. "China's coal producers have to cut production. Actually, a total cut of 0.2 to 0.3 billion tons of coal will do," he said.

"China might have to cut production by 0.4 billion tons next year," Shi Hongliang, sales director of Jiaozuo Coal Industrial Group, was quoted by China Securities Journal as saying.

Many metallurgical and chemical plants are cutting production by 30 to 40 percent and China's coal producers should cut production by at least 15 percent so that there won't be a coal supply surplus next year, said Shi.