Chinese coal producers still face challenges

Xinhua reported that new industrial indicators show a warming but still sluggish coal sector, overshadowed by excessive stock and disappointing prices resulting from overcapacity.

Data from the China National Coal Association showed that national coal output rose 4% YoY to 3.66 billion tonnes in 2012 with the growth rate 4.7 percentage points weaker than that of the previous year.

The business climate index for the industry climbed to -5.5 in December 2012, 19 basis points higher than in the previous month but still indicating lackluster performance. The index previously above 20 at the start of 2011 before falling to 4 year low in September 2012.

Coal companies were hit by excessive stockpiling and plunging prices last year as the country’s slowing economic growth slashed coal demand sharply. By the end of 2012, stocks of coal producers had surged 58% YoY to 85 million tonnes while power plants, their main consumers, still held storage for 81.13 million tonnes of coal, enough for more than 19 days of use.

The companies were also slammed by falling prices. On December 28 of last year, price at a major national coal market in north China’s city of Qinhuangdao dropped about 26.98% to CNY 630 per tonne from the beginning of the year.

The association said that it expects coal demand to increase this year due to increasing urbanization. However, growth will maintain a slower pace, as the market still faces uncertain and unstable factors.

The sector’s overcapacity has forced industrial participants to seek a more optimized business approach through mergers and acquisitions. In 2012, the number of coal producers with annual revenues greater than 20 million yuan shrank to 6,200, down 1,500 from the previous year.

Source - Xinhua

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