Shanxi takes actions to steady local coal market

As coal prices remain lackluster due to sluggish demand, Shanxi took measures to stabilize the local coal market and ease the mounting pressure that coal producers in the province have been feeling since January.

The Shanxi provincial government has introduced 20 measures, including tax and administrative charge cuts, to accelerate the economic transformation and development of its coal industry and maintain sustainable growth, a notice posted on the government's website said.

The short-term measures will be implemented from Aug 1 to Dec 31. Governments at different levels will also suspend the collection of environmental protection fees and industrial transformation development fees from coal mines, and cut coal trading service fees by 50 percent.

The province will also urge financial institutions to help coal companies conduct debt-restructuring projects, and establish mechanisms to set up coal reserves organized by local governments. The long-term measures are expected to improve coal spot and futures trading.

Before Shanxi's move, major coal production regions such as the Inner Mongolia autonomous region and Shandong and Henan provinces had also started to act to respond to the surging number of companies halting or cutting production in light of the adverse market conditions.

Twenty-six large Chinese coal producers have chalked up combined losses of 4.66 billion yuan ($759.58 million) in the first half, according to the Beijing-based China National Coal Association.

"The prolonged slump in domestic coal prices has put a number of Chinese mining companies in a negative position. They have difficulties facing the surge in payment delays, rising transportation fees, as well as labor and operational costs," said Liu Jianzhong, the chairman of Shanxi Coal Transportation and Sales Group Co Ltd in Taiyuan.

China's total coal production in the first half stood at 1.79 billion tons, down 68 million tons from the same period a year earlier, with 16 provinces posting declines.

Thermal coal production in China fell to a four-year low as industrial demand declined amid the sluggish economic development. Coal with an energy value of 5,500 kilocalories a kilogram at Qinhuangdao - a benchmark for China's domestic coal market - slid to a range of 560 yuan to 575 yuan a metric ton on Sunday, the lowest since July 27, 2009, according to the China Coal Transport and Distribution Association.

Liu said the majority of State-owned mining enterprises in Shanxi are struggling to make a profit. Small private mines have either cut output or stopped production.

The province will assign power-generating quotas to a number of enterprises, which are capable of carrying out the integrated production of both coal and electricity, to accelerate the pace of the integration of the coal and power industries.

Shanxi aims to produce 900 million tons of coal this year. The province also plans to sell over 600 million tons of coal to other provinces, and achieve a sales income of more than 1 trillion yuan, according to the Shanxi Coal Industry Bureau.

Meanwhile, similar measures have also been applied in neighboring provinces. Henan province started to allow power plants using locally produced coal to generate more electricity, and is studying the feasibility of direct power supplies to large-end users.

While adopting measures like preventing coal from other provinces from entering Shandong, the East China province has begun to store more coal since May for the peak summer demand period as a way to stabilize local prices.

"These measures, however, may still not be enough to boost the weak coal market, if the use of renewable energy and gas grows quickly, and imported coal continues to stay active in the second half of the year," said Li Xuegang, an industrial analyst at the Qinhuangdao Coal Trading Center in Hebei province.

Li said that even though China's coal demand will continue to grow, its growth rate may slow down and the proportion of the nation's power output produced from coal is expected to drop in the long-term as consumption of other resources surges.

Yanzhou Coal Mining Co Ltd, a major Chinese mining company in Shandong province, amended its performance report for the first half of 2013 on Tuesday. It now expects a loss of 2.35 billion yuan for the period.