Major coal firms cut production as prices fall, stocks rise

Up to half of the coal companies in Ordos, one of the major domestic coal producing regions in the Inner Mongolia autonomous region, are reported to have reduced or stopped production, because of falling electricity consumption and an increased use of hydropower generation.

Dai Bing, director of the coal industry information department at JYD Online Corp, a Beijing-based bulk commodity consultancy, said on Thursday that thermal coal stockpiles of production companies, traders and coal-fired power plants in the area "are all at a high level".

He added that coal-fired power generation is also not expected to rise this summer because of the abundant hydropower being generated.

"Because of the country's economic slowdown, power generation demand for thermal coal is unlikely to rebound," he said.

Last year Ordos produced 596.7 million metric tons of coal, accounting for around 16.35 percent of China's total output.

But Dai said that the widespread production shutdown by some important coal producers reflected shrinking industrial activities, evidenced by the falling power consumption.

Similar coal production slowdowns are being reported in Shanxi province, another traditional large coal producer in northern China.

In the first quarter of the year, Shanxi produced 220 million tons of coal, a 0.6 percent year-on-year rise, according to figures from its statistics bureau.

The province's top five coal companies all suffered losses, which have been blamed on weak demand.

Across the country, China produced 830 million tons of coal in the first three months of the year, a 1 percent drop from the same period last year.

At the same time, net coal imports for the first quarter grew 26.3 percent year-on-year to 77.96 million tons.

Analyst say the rapid rise in coal imports contributed to falling domestic coal prices and a crash in profits for Chinese coal producers.

Faced with the worsening market conditions, many Chinese coal companies have cut prices and reduced production.

By the end of April, the Bohai-Rim Steam Coal Price Index, China's major coal price benchmark, had dropped 2.8 percent, from 634 yuan ($103.3) a ton at the beginning of the year to 614 yuan a ton.

For the first quarter, 32 of the 43 listed coal companies on the Shanghai and Shenzhen stock exchanges reported net losses.

The government is reported to be making efforts to help them reduce their taxes and other regulatory fees.

Recent speculation has suggested Beijing is considering the abolition of the coal trading license, which will bring "reformative changes" to China's coal market, according to 21st Century Business Herald, quoting unnamed sources at the National Development and Reform Commission.

Since being introduced in 1996, all coal traders have to apply for a license to buy and sell coal in China.

The NDRC owns the rights to issue new licenses and cap the overall number of trading companies.

Analyst suggest the removal of license approval will promote market competition.

However, there are fears the new rule may lower the thresholds of coal trading companies.

According to JYD Online, the average thermal coal price in Shanxi dropped 30 to 40 yuan a ton in April. The unit coal price decline in Inner Mongolia reached 60 to 80 yuan a ton.

Dai predicted that coal prices will remain low for the next few months, but some experts predict the situation will become even worse.

"Another round of large-scale coal price drops is likely soon," added Li Chaolin, a researcher at the China Coal Transportation and Sale Society. They will affect not only Inner Mongolia and Shanxi, but also other key coal-producing provinces including Henan, Shandong and Shaanxi.