China’s Coal Industry: Status and Outlook

The years between 2002 and 2012 are called Golden Decade for the coal industry in China. After May 2012, the coal industry fell into depression.

In the Golden Decade, a large amount of social capital inflow was attracted by increasing market demand and coal prices, but it also resulted in overproduction. The recession in downstream industries, including the steel industry and building materials industry, and the squeeze from non-fossil energy sources mainly contributed to the slump in the coal industry. The coal industry in China is undergoing a very tough period.

Challenges

Here is a brief summary of some of the coal industry’s challenges.

Demand and Supply Decline. For the first 11 months in 2015, the coal supply in China was 3.55 billion tons, declining by 14.67% compared to 2014. For the first 10 months of 2015, coal demand was 3.23 billion tons, a drop of 4.7%. The high-speed growth in investment and excessive expansion in capacity from 2002 to 2012 resulted in unbalance between coal supply and demand. With continued high levels of coal production even since 2012, the supply-demand ratio in 2014 reached its peak at the value of 1.18.

Price Slump. Since 2012 coal prices in China have been on the decline. The price of coal with a calorific value of 5,500 kcal/kg at Qinghuangdao Port fell by 20.89%, 0%, 13.93%, and 28.57% each year from 2012 to 2015. The price of coal in 2015 dropped to 370 CNY/ton, which was back to the level it saw in 2004.

Benefits Shrink. In 2015, more than 85% of coal enterprises were in a deficit state. Profit declined to 40.08 billion CNY, equal to the level in 2005. And, according to the latest data from the China National Coal Association, the average asset-liability ratio in the coal industry has reached 67.7%—the highest level in the past 16 years.

Investment Declines. Weak coal prices and lower profits have compressed investment in the industry. Fixed-asset investments slowed down beginning in 2013. In 2015, investment was 400.8 billion CNY, 14.4% lower than in 2014.

Opportunities

To be optimistic, opportunity coexists with the challenges.

Electric Power Substitution. Electric power substitution means to substitute electricity for coal burning in end-use processes. Using electricity can improve coal-use efficiency, decrease decentralized coal pollution, and rationalize energy consumption. It can improve the consumption ratio of thermal coal in total consumption, which will stimulate the rational utilization of coal. What’s more, substituting electricity for decentralized coal use benefits larger and more efficient enterprises and contributes to eliminating less-modern facilities.

Belt & Road. India and Southeast Asia import large amounts of coal. The Silk Road Economic Belt and the 21st Century Maritime Silk Road (Belt & Road)—a development strategy proposed by President Xi Jinping to increase exports, especially to Eurasia—can increase China’s coal exports to these countries. In addition, the infrastructure in some underdeveloped areas like Africa and Central Asia can’t satisfy their needs for economic development. China can provide them with steel, building materials, and other energy-intensive products, which can stimulate domestic coal consumption and then relieve the pressure of oversupply. Belt & Road also provides a big chance for coal enterprises in China to exploit the international coal market and participate in international competition.

Energy Internet. The energy internet is an energy equivalence exchange and sharing network, which links the coal network, oil network, gas network, and other energy networks by using information technology, intelligent management technology, to realize energy bidirectional flows. The energy internet is end user–focused, so those who have the most customers will win. With the background of an energy internet and electric power system reform in China, coal enterprises can set up electricity companies and sell electricity. This provides coal enterprises with a chance to dominate both the coal and end users in energy market.

Support Policies

The Chinese government has issued lists of policies to help the coal industry recover, which are mainly focused on eliminating “backward capacity” (polluting, unsafe, inefficient, and other suboptimal enterprises), controlling the amount of coal produced (“yield control”), supporting clean coal development, and the like. For example, Opinions on Solving Excessive Capacity and Recovering Coal Industry (issued by State Council on February 5, 2016) indicates that backward capacity that doesn’t conform to industrial policies will be eliminated. Notifications on Implementing the Treatment Measures on Illegal Coal Mines (issued by National Development and Reform Commission on May 26, 2015) points out that if thermal power enterprises purchase coal produced by illegal coal mines, the amount they are allowed to generate will be reduced, as punishment.

The coal industry in China has suffered from serious depression since 2012, and the tragedy continues in 2016. Fortunately, the opportunities above have provided great support, and the coal industry is striving to work its way out of the depression. The coal industry in China still has bright prospects. ■

Niu Dongxiao, PhD, a professor at North China Electric Power University (NCEPU), has been named distinguished Cheung Kong Scholar by the Ministry of Education and has outstanding achievements in the field energy management, load forecasting, energy system evaluation, and more. Song Zongyun and Xiao Xinli are doctoral students in the School of Economics and Management, NCEPU.

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