Chinese coal companies hit by slowing demand

More than 70% of China’s coal companies are losing money, Reuters has reported, quoting the head of the China National Coal Association (CNCA), as prices suffer from falling demand, a glut in supply and the Chinese government’s drive to reduce urban pollution levels.

Beijing recently closed one large coal-fired power plant and will close three more as part of the government’s battle against smog. “Pollution in China has been a serious issue for some time, but it has now become one of the biggest sources of public discontent in the country,” said Jonathan Robinson of Frost & Sullivan in a recent report.

In what could be a sign of things to come, the plant will be replaced by a gas-fired power plant. Standard & Poor’s (S&P) recently called gas the “main threat for the coal industry over the long term”, citing China’s deal with Russia to import natural gas via pipeline and the government’s aims to foster a domestic shale gas industry.

While both initiatives involve relatively small amounts compared to China’s potential demand for gas, they mark a significant policy turn at a time when China’s leaders are formulating the country’s next five-year plan – a plan that could include a mandatory cap on coal use, according to a recent report from the New York Times.

And the situation could worsen, said Wang Xianzheng of the CNCA, as capacity from new large-scale mines comes online and imports remain cheap, while consumption continues to slow. According to S&P, China will reach peak demand for coal in 2020 with demand growth in the low single digits until then.

China produced 1.85 billion t in the first six months of the year, a drop of 1.8% on the previous year. Meanwhile, profits have dropped 43.9% in the first five months of the year, according to a briefing from the Ministry of Industry and Information Technology, making coal one of the worst performing sectors of the year.

Written by Jonathan Rowland

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