Policies offer hope to crumbling coal market

Output cuts, import restrictions seek to lift depressed prices

There are times when it is difficult to see across a single street in Beijing due to the thick and sometimes pungent smog that often envelops the city. Over the past decade, China's dependence on coal has led to worrisome air pollution in many cities across the country. However, a sequence of ambitious government policies to deal with the air pollution has resulted in another problem - a dying coal industry.

China's coal industry has suffered several major setbacks in recent years. Official data show that coal production in the first half of this year dropped 1.8 percent year-on-year to 1.8 billion tons.

A series of policies to reduce energy use and greenhouse gas emissions has dragged down demand for coal this year, as well as its price. As of the end of July, more than 70 percent of coal companies in China have reported losing money, and more than half of them have had difficulty paying their workers' salaries, according to a survey conducted by the China National Coal Association.

The data paint a picture of an industry weighed down by surplus supply and overcapacity, which suggests it will be difficult to break the downward trend in the near future. In response, multiple government ministries have recently held meetings to discuss measures to salvage the declining coal industry.

The most basic ways to help the industry have been to reduce the supply surplus and stem the tide of cheap imported coal.

Growing stockpiles have been one of the major factors holding back the industry. As of June, the country's coal stockpiles had held at more than 300 million tons for 31 consecutive months. At the five major ports in northern China, such as Tianjin and Qinhuangdao, stockpiles grew to 24 million tons last week, up 56 percent from the beginning of the year.

It's true that China's consumption of coal nearly doubled over the past decade. However, now that it is confronted with changing policy and glaring anxiety about air pollution, even the once unassailably confident industry association has begun to change its mind-set about coal.

The China National Coal Association has gone from projecting that coal consumption will grow 30 percent by 2020 to calling for China's coal-rich provinces to cut their output by 10 percent over the second half of this year. The output cut was designed to stabilize coal prices. So far, it has worked surprisingly well.

Last week, coal prices surged in Ordos, the Inner Mongolia Autonomous Region, for the first time in three months, according to the latest data on the association's website. The association went on to predict that coal prices will rise dramatically in the fourth quarter of this year as coal companies cut output to comply with the restrictions.

Coal imports are another factor weighing on the industry. Although imports only grew 0.9 percent year-on-year in the first half, the majority of the imports consisted of low-quality coal. In the first five months of the year, imports of brown coal jumped 19.5 percent year-on-year, official statistics show. Brown coal is a kind of thermal coal with low calorific value that is widely used in impoverished areas. Imports of metallurgical coal, which is of much higher quality, fell 17.3 percent over the same period.

China is the largest coal consumer in the world, so imports remain necessary. However, China needs to change its policy to cut back on the amount of energy inefficient coal it imports.

It was uplifting to see coal prices recover shortly after China adopted tougher measures to resuscitate the coal industry. After all, for the public, a more efficient coal industry not only puts coal companies on the road to recovery, but more importantly, it also means less smog, cleaner air and a clearer sky.