China's coal industry still plagued by overcapacity despite price rebound

BEIJING - The supply-demand mismatch in China's coal industry has not seen a substantial change despite prices rebounding this year, an industry association said.

"There are still many uncertainties in the coal market, and we should not be blindly optimistic," Wang Xianzheng, head of the China National Coal Association said.

The cautious tone came as coal prices have risen in recent months amid a government campaign to cut ineffective production. The price increase has seen some local governments and companies wavering in their efforts to cut capacity.

The Bohai-Rim Steam-Coal Price Index, a benchmark index, stood at 554 yuan ($83) per ton by September 21, a price increase of 49.3 percent since the beginning of the year.

At a press conference last Friday, an official from the National Development and Reform Commission (NDRC) attributed the price rise to increasing coal consumption, a crackdown on illegal production, as well as transport and logistics problems.

But with coal demand set to retreat amid government efforts to consume cleaner energy, the struggles in the industry will continue, Wang said.

By the end of July, China's major coal producers had 3.66 trillion yuan of debts, up 4.7 percent year on year.

To reassure the market, the NDRC said China has plenty of policy tools to stabilize rapidly rising coal prices. If prices rises continue, the government will take steps to increase supply, while ensuring capacity-cutting efforts are not weakened, the NDRC said

China is the world's largest consumer of coal. The industry has long been plagued by overcapacity and has felt the pinch more over the past two years as the economy cooled and demand fell.

During the first eight months of the year, China's coal output fell 10.2 percent year on year to 2.18 billion tons. But official data also shows that as of the end of July, China had only achieved 38 percent of its coal cutting targets.

China plans to cut coal capacity by half a billion tons in the next few years, with vast funds set aside to help displaced workers.

This year, the government aims to cut coal capacity by 250 million tons.