Ca­pac­ity cuts aim to take heat off coal

China Daily European Weekly - - Business - By YANG ZIMAN yangz­i­man@chi­

A price ad­just­ment scheme will help sta­bi­lize China’s coal in­dus­try in 2017 as au­thor­i­ties press ahead with ca­pac­ity re­duc­tion, ac­cord­ing to the chief of the in­dus­try’s top na­tional body.

“Coal ca­pac­ity re­duc­tion needs to be done through both ad­min­is­tra­tive and mar­ket means. The scheme is a re­sult of ne­go­ti­a­tions among coal, steel and power in­dus­trial as­so­ci­a­tions. It is a sound sys­tem that caters to the in­ter­ests of pro­duc­ers and con­sumers in the mar­ket,” says Jiang Zhimin, pres­i­dent of the China Na­tional Coal As­so­ci­a­tion.

Last week, the Na­tional De­vel­op­ment and Re­form Com­mis­sion re­leased a no­tice on pre­vent­ing se­vere coal price fluc­tu­a­tions in 2017, es­tab­lish­ing spe­cific bench­mark prices for the mid-and long-term con­tracts be­tween coal com­pa­nies, power com­pa­nies and steel smelters.

The com­mis­sion has for­mu­lated three price spec­trums: green (500-570 yuan per ton, or $7383 per ton; 49-56 eu­ros; £43-49), blue (570-600 or 470-500 yuan per ton) and red (above 600 or be­low 470 yuan per ton).

In the green re­gion, there will be no ad­just­ment mea­sures. In the blue re­gion, the gov­ern­ment will en­hance mar­ket su­per­vi­sion and of­fer guid­ing mea­sures when deemed ap­pro­pri­ate. In the red re­gion, the gov­ern­ment will launch the con­tin­gency plan for the ad­just­ment of ab­nor­mal prices.

“Gen­er­ally speak­ing, coal prices of 500 to 700 yuan per ton are ac­cept­able for most coal com­pa­nies and down­stream in­dus­tries. Be­low 470 yuan per ton, the coal in­dus­try will suf­fer across-the­board losses,” says Jiang.

The power coal price was around 639 yuan per ton at the end of last year, up 72.7 per­cent from the be­gin­ning of 2016.

Jiang does not of­fer any pre­dic­tion about the ca­pac­ity re­duc­tion goal this year, say­ing that it’s be­ing dis­cussed and will be re­leased by the State Coun­cil af­ter the Spring Fes­ti­val hol­i­day.

The ac­tual ca­pac­ity re­duc­tion last year was around 300 mil­lion tons, com­pared with the goal of 250 mil­lion tons. The ca­pac­ity is in­creas­ingly con­cen­trat­ing in large com­pa­nies. The num­ber of coal mines has gone down from 24,800 in 2005 to the cur­rent 9,000.

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