Transformation won't be easy for industry in weak economy
The Chinese authorities' latest order to coal enterprises to reduce production can help cut supply in the industry, experts said Tuesday, but they noted that the weak economy and grim industry situation will make it hard for China's coal enterprises to get out of the red in the next several years.
Four ministries, including the National Energy Administration, have recently released a document ordering all coal mines to cut their production days, the Shanghai Securities News reported on Tuesday.
All coal mines, except those that produce specific types of coal or have specific safety requirements, can only produce at most 276 days a year, the document said. Previously, mines could produce 330 days a year.
Also, North China's Shanxi Province ordered all integrated coal mines under the five large provincial coal enterprise groups to stop output and construction to rectify safety risks, the newspaper said.
"Apart from preventing hidden safety troubles, the main purpose of these policies is to reduce supply in China's coal sector, which is seriously oversupplied," Xing Lei, a veteran industry expert and a professor at the Central University of Finance and Economics, told the Global Times on Tuesday.
On February 5, the central government said in a document that China will cut 500 million tons of coal production capacity in the next three to five years.
Amid the tough industry conditions, about 90 percent of coal enterprises in China recorded losses in 2015, China Business News reported in January.
Xing said the latest move to cut production won't immediately have an effect. "Industry-wide losses won't vanish in the next several years," he said.
He cited the weak economy and China's economic transition, which have put heavy pressure on the coal industry.
The current market demand is also sluggish. In most time of the first three months, China's six major power generation groups consumed less coal than in the corresponding period of 2015, Xu Gao, chief economist of China Everbright Securities Co, was quoted as saying in a note sent to the Global Times on Tuesday.
Faced with these difficult conditions, coal companies have taken different strategies.
One of the largest coal enterprise in the country, Beijing-based China Coal Energy Co, has cut its production target for 2016.
Meanwhile, Shandong Province-based Yankuang Group decided to increase production in 2016, ce.cn reported on Sunday.
"Small coal enterprises don't have the resources to cope with long-term losses," Xing noted.
As for the advice that coal enterprises should transform themselves, Xing said, "It's not that easy."
"There are no promising coal-related industries in today's sluggish economy," he said.
