Overcapacity driving China`s coal industry into the ground
Source: www.chinamining.org Citation: www.wantchinatimes.com Date: November 04, 2014
With coal prices spiraling downward, major Chinese coal firms are going to sink even further into the red unless they can improve and adapt their operations to the new industry climate, reports Shanghai`s China Business News.
In the first three quarters this year, 20 major Chinese coal firms suffered a total net deficit of 10.56 billion yuan (US$1.7 billion), with only seven of them managing to scrape in a slim profit. Combined accounts receivable also topped staggering 130 billion yuan (US$21.2 billion), according to the report.
One major culprit for the industry`s vexing problem is excess capacity, a result of two rounds of vigorous investments in the industry since 2006 in response to the booming market. The inflow boosted the industry`s total annual capacity, including production facilities under construction, to an enormous 5 billion tons, with accumulated investments reaching upwards of 3 trillion yuan (US$490 billion).
The Chinese coal industry began to pick up in 2002, reaching its heyday between 2008-2012 as huge amounts of capital flooded into the sector. Coal output of Yulin, the foremost coal production site of Shaanxi province, jumped to 339 million tons in 2013, making it one of the corners, along with Ordos in Inner Mongolia and Shuozhou in Shanxi province, of China`s "golden triangle of coal."
The coal industry is now standing at a crossroads as firms puzzle over their next move. A consensus is for them to switch to coal chemical engineering, which involves a litany of thorny problems. The shift in enterprise would have to deal with huge capital investments, a cloudy outlook, foreign competition, and environmental pollution, complicated further by the current slump of global energy prices.
The nation`s coal capacity now stands at 4 billion tons a year, 300-400 million tons more than demand, with excess capacity expected to increase further following the completion of new facilities to add a combined 1.1 billion tons in total.
"Due to overcapacity, the nation`s coal stock has topped 300 million tons for more than 30 months in a row and it will be very difficult to cut the stock in the foreseeable future," said Lu Yaohua, vice chairman of China National Coal Association.
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