Coal giants axe output amid prolonged malaise

Winter for China's coal mine industry may be longer and more severe than expected as a third coal mine behemoth announced plans on Monday to reduce production amid plunging prices.

The Datong Coal Mine Group, based in coal-rich Shanxi Province in north China, said it would cut coal production and sales by 10 million tonnes for the second half of the year.

It followed similar announcements by China National Coal Group and Shenhua Group last month, seen as efforts to rescue a market troubled by continuous price drops.

Many Chinese coal producers have been struggling with falling prices since 2012. Prices for coal used in power generation, the country's benchmark, had fallen from 610 yuan per tonne at the beginning of the year to 479 as of Aug. 20.

"We haven't felt the bottom, nor do we see hopes for recovery," said Cao Man, whose coal mine in Shanxi has reported losses since last year.

"Previous price downturns occurred when China was in the midst of fast-track economic growth, so they were followed by new rounds of price rises, but this time things are different," Cao said.

INDUSTRIAL RESHUFFLE

Observers believe the latest coal price drop may continue for three years or even longer, largely due to China's slower economic growth and the industry's excess capacity.

According to official statistics, China's industrial electricity consumption increased by 4.6 percent between January and July, 0.7 percentage point slower year-on-year. The sluggish demand for coal, however, coincided with a surge in supply as a result of the industry's rapid expansion over the past decade fueled by the economic takeoff.

Statistics released by the China National Coal Association (CNCA) show 70 percent of the domestic coal industry suffered losses in the first half of 2014. The bleak situation has led to shutdown or production suspension at many mines.

In response, China's central authority last week issued a notice to curb overproduction at coal mines. Jiang Zhimin, deputy head of CNCA, said the industry has reached a consensus to reduce output by 10 percent in the second half of 2014.

But experts say output reduction alone may not lead the industry out of the current plight. China can instead use the reshuffling brought by the price slump to address many of the industry's intrinsic problems, including low efficiency, poor environmental standards and lack of consolidation.