China targets aggressive coal capacity cuts to 2020 Beijing to...

China targets aggressive coal capacity cuts to 2020
Beijing to press on with phasing out older mines as total production increases

China aims to cut the capacity of its coal mines by 300m tonnes a year until 2020 even as production and consumption of the fuel increases, according to the country’s top economic planner.
Beijing is targeting output of 3.9bn tonnes of coal in 2020, up from 3.75bn tonnes in 2015, said the National Development and Reform Commission, adding that consumption will rise to 4.1bn tonnes from 3.96bn tonnes over the same period.
Under the plan, revealed at the end of last week, the NDRC will cut 800m tonnes of “outdated” and inefficient coal capacity each year while adding 500m tonnes of “advanced” capacity. The reductions will be concentrated among smaller mines in the north-east. Big producers in the western regions, such as Inner Mongolia and Xinjiang, will boost supplies.
Surging coal prices were among the biggest surprises in commodity markets during 2016. After China introduced production curbs in April the price of thermal coal, used to generate electricity in power stations, more than doubled, reaching $110 a tonne in Asia as utility companies were forced to import material. International suppliers include BHP Billiton, Glencore and Rio Tinto.
The price of coking coal, a key ingredient in steelmaking, also surged as a consequence of the supply curbs, to more than $300 a tonne, making it the best performing commodity of 2016.
Those gains have faded as Beijing — alarmed by the spike in price — relaxed the controls. High-quality Australian thermal coal is trading around $94 a tonne, while premium hard coking coal has slipped back to $224.
With China the world’s largest coal consumer and biggest emitter of greenhouse gasses, Beijing has set aggressive targets to cut coal overcapacity by half a billion tonnes “over the next few years”.
The reductions reflect an effort to bolster prices and allow China’s chronically bloated state coal miners to repay loans. However, planners failed to account for the degree to which private miners had also dropped out of the market, and were caught off-guard when investors profited by the squeeze to drive up futures prices of coking coal.
The steep rise in prices has already prompted the NDRC to gradually relax controls that limit mine operations from 330 days a year to 276. About 800 mines are being allowed to increase their working days, a move that could increase effective production capacity by 300m tonnes a year. However, it will take time for that supply to hit the market.
China aims to cap total primary energy consumption at around 4.4bn tonnes of coal equivalent in 2017, Nur Bekri, the country’s top energy official, said on Wednesday, close to 2016 levels as the country battles chronic smog.
“Measures to tackle overcapacity this year have not fundamentally changed the oversupply in the coal market,” a state-run newspaper quoted Mr Bekri as saying last week. “Cutting overcapacity will remain a key trend in the coal industry in the next three to five years,” he added.