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China to continue scrapping excess coal capacity in 2020

China will continue removing excess and inefficient coal capacity nationwide during 2020, Mysteel Global has learned. Though no detailed capacity task has been released by Beijing yet, some of the country’s leading coal mining provinces and regions have already announced fresh plans for scrapping coal-mining capacity this year.
In 2016, China’s central government announced that the country was targeting cutting 800 million tonnes/year of excessive coal capacity over 2016-2020 – a goal that was accomplished two years ahead of schedule in 2018. However, meeting the target has not stopped the country eliminating more coal capacity regarded as surplus to needs, with many provinces and regions continuing capacity removal work in 2019 and 2020, Mysteel Global notes.

“Starting 2019, the capacity removal work for China’s coal industry became no longer simply ‘cutting excess capacity in general’, but was aimed at optimising the industrial structure,” said a Shanghai-based analyst.

“In fact, since last year the central government has not released details the capacity volume that it wants to see eliminated. Instead, Beijing has started identifying the kinds of mines to be removed and is leaving local governments to set up their targets,” he explained. 

For 2020, Shandong province in East China will cut 9.9 million t/y of excess coal capacity in total, according to a March 26 post from the province’s Development and Reform Commission. Those mines facing issues such as high safety risks, resource exhaustion and heavy pollution will be targeted as priorities.

According to the plan, seven coal mines hosting a total of 7.6 million t/y of capacity will be permanently closed by the end of October, and another five coal mines will cut their mining operations by a total of 2.3 million t/y by October too.

Shandong, boasting some 145 million t/y of raw coal capacity by mid-2019, is not a major coal mining province in size. Nevertheless, the province is a leading coking coal mining province, mainly for gas coal production.

Earlier than Shandong, Shanxi in North China, the country’s second-largest raw coal mining but the largest coking-coal mining province, announced its target to remove 15 million t/y of excess coal capacity for this year in January. However, no detailed work plan has been released yet.

Besides Shandong and Shanxi, Inner Mongolia in North China, Henan in Central China and Jiangxi in East China have also released guidelines for reducing excess coal capacity for 2020. Almost all mines in the plans are small-sized, Mysteel Global has learned.

“Scrapping those small-sized mines does not mean that domestic coal prices will increase, as in general, the country’s coal supply is easing and more large-sized and high-efficiency coal mines are under construction,” said an Inner Mongolia-based industry source. “The large-sized mines will benefit though, as coal orders will be concentrated to them in the future,” he added.

The tough capacity-elimination measures in the coal industry beginning in 2016 had caused sharp declines of domestic coal output initially, and it was not until 2019 that the country’s raw coal output started to exceed the level of 2015.

For 2019, China produced 3.7 billion tonnes of raw coal from domestic sizeable miners, 4.2% higher from 2018 or 1.6% higher from 2015, according to National Bureau of Statistics.

Written by Sean Xie, xiepy@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com