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China Seen Curbing Coal Supply as Price Drops to Near 8-Year Low

China’s benchmark thermal-coal price slumped to the lowest level in almost eight years, prompting speculation that the government will take further steps to curb an oversupply.

Spot coal with an energy value of 5,500 kilocalories per kilogram at the port of Qinhuangdao, China’s benchmark grade, fell for a fourth week through March 22 to an average of 465 yuan ($75) a metric ton, according to data from the China Coal Transport and Distribution Association in Beijing. That’s down almost 9 percent from the start of the year and the lowest since August 2007.

China, the world’s biggest market for coal and the worst carbon-dioxide emitter, in 2014 urged its 14 largest producers to cut output by 10 percent as miners became unprofitable and started delaying wage payments. It also reintroduced coal-import tariffs to curb foreign supplies.

“The support policies introduced by the government last year worked to the opposite — smaller miners managed to survive and intensify the supply glut because output from big domestic producers and from overseas were reduced,” Deng Shun, an analyst at ICIS China, a Shanghai-based energy consultant, said by phone from Guangzhou. “I expect further price declines will be limited as the government may well step in again to ensure social stability.”

The National Development and Reform Commission last week met with the 17 largest domestic coal producers, appealing to them to halt illegal output, Winston Han, an analyst at the China Coal Transport and Distribution Association, said on March 20. Coal imports slid 45 percent in the first two months from a year earlier to 32 million tons, data from the General Administration of Customs showed on Monday.
Illegal Mines

China’s coal industry faces “a very difficult situation” as prices continued to fall, Lian Weiliang, the deputy head of the NDRC, said on March 12, pledging to strictly control unsafe production. The country has 192 unauthorized coal mines and plans to shut 200 million to 250 million tons of capacity this year, according to official estimates.

Coal demand from utilities is weak as the fuel is being replaced by alternative sources such as hydropower amid efforts to fight pollution, according to Deng. The government is seeking to reduce coal’s share in its energy consumption to less than 62 percent by 2020 from last year’s 64 percent.
Source: Bloomberg