China Capping Coal Production Until 2015

Posted by Mike Tirone - Friday, March 23rd, 2012

Within the energy sector, China is nearly always a highlight of conversation. The world is alwasy carefully watching what they are doing and why they're doing it...

Today's news has everyones' ears perked.

Just less than 24 hours after President Obama's energy tour of speeches, China announced that their domestic coal production will be capped. 

According to China Daily's report, the nation's coal industry is expected to be capable of producing 4.1 billion metric tons by the end of 2015. However, Wu Yin, deputy director of China's National Energy Administration (NEA), says that coal output will be kept within 3.9 billion metric tons in order to control frivolous energy usage and reduce carbon emissions.

Critics wonder if China's real goal is an environmental one or if an alternate agenda hides underneath the surface of the story...

The government has encouraged companies to explore for coal offshore in the meantime. Wu said China will be forming 10 large coal companies capable of producing 100 million metric tons of coal a year and another 10 companies capable of producing 50 million metric tons a year. These 20 companies will be the core of the coal industry in the nation, being responsible for 60% of China's total production.

"China will continue to promote mergers and acquisitions in the coal industry," Wu said. "We will work to develop large coal companies and shut down coal mines to eliminate outdated operations."

The NEA will try to “rationally control” the scale of coal production by slowing construction in China's central regions. They will place more emphasis on west China. About 87% of China's new coal projects, according to the NEA, will be in the Inner Mongolia, Ningxia and Xingjiang autonomous regions as well as along the provinces of Shaanxi, Shanxi and Gansu.

From Mineweb.com:

Dain Bing, senior analyst at coal.com.cn, a Chinese coal trading website said the government is likely to meet its goal of controlling coal production. "The main reason is that the mergers and acquisitions in the industry will help form larger coal producers that own bigger production operations. The increasing capacity to produce coal will help the country establish an emergency storage system for coal, a goal also listed in the plan."

Meanwhile, analysts have predicted that coal for Asia's coal-powered plants is headed for the worst slump in three years as slowing economic growth reduces demands and U.S. coal imports threaten to flood coal markets.

Director of international marketing at TWE Supply & Trading in Essen, Germany says “We are in a buyer's market. There's a lot more supply in the market than demand.”

Based off of data form the Chinese government and the China Coal Transportation and Distribution Association, it looks as though China will probably have an oversupply of coal after being in balance last year. Production capacity in the meantime will increase by 400 million metric tons this year, while consumption will expand about 150 million tons.

Only 20.6 million metric tons of coal was imported in February for China according to customs data. That is 7.2% less than the record low set in November and it includes thermal and steelmaking coal grades.

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