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China may cut coal imports further amid domestic glut

The Chinese government could seek to reduce coal imports further as it works to protect its domestic coal mining industry amid a production glut, a leading industry forecaster has warned.

The chronic unprofitability of China’s domestic coal mines resulted in a series of measures being adopted in 2014 that cut coal imports by as much as 10 per cent, and led to production cutbacks by global producers such as Glencore, which idled mines in Australia over the end of 2014 and recently announced local production cuts of around 15 per cent for 2015 amid continued weak prices.

“The Chinese government is clearly attempting to limit coal imports to support domestic miners,” industry analyst CRU said. “If weak market conditions prevail in China, there is certainly potential for the government to enforce even tighter restrictions … including stricter trace element limits affecting phosphorus, chlorine and arsenic.”

Already the Chinese government has imposed levies on coal imports along with recently instituting tighter quality controls, while at the same time moving to ease levies on coal exports by Chinese miners.

As a result, China’s domestic coal production fell 2.9 per cent in 2014, while the tighter quality controls resulted in imports slumping heavily in January and February.

The central government has been unsuccessful in reducing domestic coal production to the extent it sought, the study found.

“Production control has been complicated due to provincial governments having different priorities to those of the central government, with provinces effectively competing for market share and, therefore, reluctant to reduce volumes,” according to CRU.

As a result export coal prices remain under pressure, with the actions of the Chinese government preventing “a meaningful recovery”, the study found.

In 2014, thermal coal and coking coal prices declined by 23 per cent and 26 per cent, the study found.

According to the China Coal Association, around 70 per cent of China’s coal companies lost money in 2014.
Source: Sydney Morning Herald