Amid China’s push for carbon neutrality, many coal companies had become uncertain about their prospects. However, the surge in coal prices this year has resulted in increase in coal production, leading to a moving away from the set goal.
In July, the Inner Mongolia Autonomous Region approved land use procedures for 38 open-pit mines in Ordos City that had previously stopped production due to incomplete land use procedures, involving a production capacity of 66.7 mn t per year. At present, all these coal mines have resumed production, and the daily output of 200,000 tonne (t) of coal is likely to be achieved by August-end.
March-May are usually the ‘off season’ for coal consumption. However, this year was quite different. Amid increased coal demand due to a ‘more-than-usual’ hot weather, coal mines in the main producing areas had low inventories. Coal carts lined up for loading, and prices continued to soar.
In China, the spot prices of thermal coal with a calorific value of 5,500 kcal rose from RMB 571/t in March to RMB 865/t in May, registering an increase of more than 51%.
Coal occupies a pivotal position in China’s energy structure. At present, China’s annual consumption of raw coal exceeds 4 billion tonne, and the power sector accounts for 56% of the total consumption. The country’s coal-fired thermal power generation accounts for 75% of the total power generation.
Government measures to ensure smooth supply
In the State Council Executive meeting held in May this year the adverse effects of rising commodity prices were pointed out to ensure proper supply of commodities, curb unreasonable price increase, and urge key coal companies to increase production and supply while ensuring safety.
In addition to this, the state planner, National Development and Reform Commission (NDRC), and other departments have jointly issued a document to make joint arrangements to tackle the energy shortage caused by the current coal price surge.
The document also aims to encourage qualified coal mines to increase production capacity, and implement a capacity replacement commitment system for mines to increase production.
The capacity replacement commitment system ensures that coal mines that submit an application for increasing production before 31 Mar’22 do not need to implement capacity replacement indicators in advance, and can use the promised method to carry out capacity replacement. After obtaining the approval for the capacity increase, the same can be completed within three months.
The limitations
At present, the scope of increase in production capacity in China is still low, and thus the same cannot be effectively implemented. Environmental pressures and safety measures are two key reasons that are hampering the increase in coal production capacity.
In order to curb overcapacity, in the past few years a large number of outdated mines have been eliminated, allowing coal prices to gradually recover and the coal producers’ profitability has also improved.
While the government’s intention is to promote quality production, few companies believe that as long as they reduce production and compress supply, they can maintain high coal prices and ensure their own profits which is why currently they are not willing to produce more and increase supply.
Outlook
The industry believes that although carbon reduction is the ultimate goal, realistic targets must be set. At present, the pace of China’s energy transition is steady and the proportion of coal consumption is declining every year. However, coal is still the country’s main energy source and will continue to remain so in the near future. But market experts believe that a balance between energy transition and people’s livelihood and economy is need of the hour for the country.
Leave a Reply