Capacity cuts to take heat off coal

A worker prepares for coking coal production at a plant in Wuhai, the Inner Mongolia autonomous region. [Photo/Xinhua]

A price adjustment scheme will help stabilize China's coal industry in 2017 as the authorities press ahead with capacity reduction, according to the chief of the industry's top national body.

"Coal capacity reduction needs to be done through both administrative and market means. The scheme is a result of negotiations among coal, steel and power industrial associations. It is a sound system that caters to the interests of producers and consumers in the market," said Jiang Zhimin, president of the China National Coal Association.

Last week, the National Development and Reform Commission released a notice on preventing severe coal price fluctuations in 2017, establishing specific benchmark prices for the mid-and long-term contracts between coal companies, power companies and steel smelters.

The commission has formulated three price spectrums: green (500-570 yuan per metric ton, or $73-83 per ton), blue (570-600 or 470-500 yuan per ton) and red (above 600 or below 470 yuan per ton).

In the green region, there will be no adjustment measures. In the blue region, the government will enhance market supervision and offer guiding measures when deemed appropriate. In the red region, the government will launch the contingency plan for the adjustment of abnormal prices.

"Generally speaking, coal prices of 500 to 700 yuan per ton are acceptable for most coal companies and downstream industries. Below 470 yuan per ton, the coal industry will suffer across-the-board losses," said Jiang.

The power coal price was around 639 yuan per ton at the end of last year, up 72.7 percent from the beginning of 2016.

Jiang did not offer any prediction about the capacity reduction goal this year, saying that it's being discussed and will be released by the State Council after the Spring Festival holiday.

The actual capacity reduction last year was around 300 million tons, compared with the goal of 250 million tons. The capacity is increasingly concentrating in large companies. The number of coal mines has gone down from 24,800 in 2005 to the current 9,000.