China’s coal supply likely to increase in 2019

14-Jan-2019

China’s domestic coal supplies are likely to increase this year, as the country brings more efficient, advanced coal capacity on line, while pressure to cut capacity at older mines tapers off. Capacity increases at modern, efficient mines have been relatively modest over the past three years, but these expansions are likely to accelerate in 2019, with the government’s new strategy envisaging the development of larger mines to replace those that have closed. At the same time China will slow its intense pace of cutting excess capacity to a more modest rate this year, as the country is set to achieve its 13th five-year target for capacity reductions ahead of schedule.

China may exceed its 2018 target for a 150mn t/yr reduction in coal capacity because a number of provinces and regions have over-delivered on targeted closures of outdated coal mines. Its second-biggest coal-producing province, Shanxi, reduced capacity by 23.3mn tonne per year in 2018, the Shanxi government said in mid-December. This was 900,000 tonne per year more than its capacity-reduction target set early last year. And eastern China’s Shandong province had eliminated 4.85 million tonne per year of capacity by the end of November, more than the targeted reduction of 4.65mn tonne per year for 2018.

China reduced its coal production capacity by at least 690mn t/yr in 2016-18, with 250mn t/yr removed in 2017 and 290mn t/yr in 2016. This means that mine closures should now slow, because no more than 110mn t/yr needs to be cut in 2019 to reach the 800mn t/yr reduction target set for the 13th five-year period of 2016-20.

A slower pace of closures means more emphasis is likely to be placed on building bigger mines than those being retired. Since February 2018, China’s top economic planning agency, the NDRC, has allowed some new mines to have 300pc more capacity than the outdated mines they are replacing, in cases where power generators have more than a 50pc share in mining firms, or vice versa.

The government initially limited the capacity of new mines to that of those they replaced, mainly because this was part of China’s coal capacity elimination strategy announced in 2016 to address overcapacity. But the government loosened this restriction in 2017 to allow capacity replacement across provinces at 130pc of closed capacity.

Source: ARGUS MEDIA