On September 8, China’s National Development and Reform Commission (NDRC) held a meeting with several major domestic coal miners, including Shenhua Group and China National Coal Group, aiming to stabilize coal supply and curb rapid rises in coal prices in China.
Accordingly, the China National Coal Association (CNCA) will sign an agreement with the big coal producers, according to which they will have the responsibility to stabilize market supply, which means that output limits will be relaxed, though the 276-day annual operating limit on coal mines will remain in place.
A plan is to be issued by the NDRC to stabilize coal supply and curb quick rises in coal prices. The plan will include three response levels. The third-level response will be activated when the Bohai-Rim Steam-Coal Price Index (BSPI, caloric value of 5,500 kcal/kg domestic thermal coal) increases to RMB 460/mt ($69/mt) for two weeks, with 53 coal mines in Shanxi, Shaanxi and Inner Mongolia then to increase their average daily coal output by an aggregate of 200,000 mt. The second-level response will be activated when the BSPI rises to RMB 480/mt ($72/mt); then 66 coal mines in Shanxi, Shaanxi, Inner Mongolia, Shandong, Henan, Anhui and Jiangsu will increase their average daily coal output by an aggregate of 300,000 mt. The first-level response will be activated when the BSPI increases to RMB 500/mt ($75/mt), with 74 coal mines then increasing their average daily coal output by an aggregate of 500,000 mt. When the BSPI decreases to RMB 490/mt ($74/mt) for two weeks, the first-level response will be halted, when the BSPI decreases to RMB 470/mt ($71/mt), the second-level response will be terminated, and when the BSPI falls to RMB 460/mt ($69.5/mt), the third-level response will end.
Previously, market players had thought that the 276-day annual operating limit on coal mines might be relaxed to 330 days. However, the annual operating limit of 276 days will not be changed, though under certain circumstances the monthly operating limit could be adjusted to a monthly equivalent of the 330-day limit during the peak season, with a corresponding reduction in the number of operation days during months in the low season. However, such monthly adjustments will be possible only for thermal coal and not for coking coal.
Meanwhile, in August, the production capacity elimination in the coal industry has been accelerated. Lu Junling, deputy director general of the Bureau of Economic Operation Regulation at the NDRC stated on September 8 that as of the end of August 150 million mt of outdated coal capacity has been eliminated this year, equal to 60 percent of the annual target of 250 million mt, whereas as of the end of July only 38 percent of the annual target had been eliminated.