Coal prices fall to one-year low

Industry watchers suggested Monday that using coal as chemical raw materials rather than only as power-generating resources would be the best way to resolve overcapacity issues that have taken a toll on the domestic coal industry.

The Bohai-rim thermal coal price index, a Chinese benchmark for power-generating coal, dropped to 612 yuan ($99.6) per ton in the latest one-week statistics, from May 8 to 14, according to Qinhuangdao Ocean Shipment Coal Market affiliated to Qinhuangdao Port Co.

The index has seen a continuous decline from 815 yuan per ton last May, despite some slight fluctuations during the past one year.

Normally, coal price see a jump from April to May since this period sees the main railways used for coal transportation undergo maintenance.

However, coal prices have continued dropping "mainly due to large stockpiles," Mu Wenxin, a senior industry analyst at commodities portal Umetal, told the Global Times Monday.

Stockpiles of coals are expected to reach around 500 million tons by the end of this year, Mu predicted.

The total coal output in China reached 3.65 billion tons last year, according to the National Bureau of Statistics.

The economic slowdown has also dampened the demand for coal, another key factor pushing inventories up and making the situation worse, Mu noted.

Confronted with the issues of overcapacity, industry watchers said that a 10-year "golden period" for China's coal industry has ended.

To survive this difficult time, enterprises need to "push forward with reforms for coal consumption", Wu Xinxiong, head of the National Energy Administration (NEA), said at a meeting in April.

Wu referred to a structural upgrading of the industry, including using coal as chemical raw materials.

"Coal chemical industry, which includes gas and petroleum production from coal, has a bigger profit margin and growth potential in China," Dong Zemin, director of communication department of Kailuan Group, a State-owned coal enterprise base in Tangshan, North China's Hebei Province, told the Global Times on Monday.

But Dong noted that coal chemical projects always have high initial costs and low profitability in the short term, making some businesses cautious about starting them.

Kailuan initiated a coal chemical industry center in Tangshan in 2001 with an initial investment exceeding 2 billion yuan, with production beginning in 2006, according to Dong.

Thirty-nine coal enterprises, which are listed on the stock exchange, saw their total net profits in 2012 decline to a five-year low, according to the China Coal Economic Research Institute.

To save the coal industry, the NEA has "issued a notice" to raise the quality standards for coal imported into China, including lower sulphur content and reduce total import volumes, a source was quoted by National Business Daily as saying Monday.