January 18, 2016 / 4:15 AM / in 2 years

China ban on new coal mines barely scratches the surface of tackling capacity

BEIJING, Jan 18 (Reuters) - China’s decision to stop approving new coal mines for three years has been applauded by green groups, but the move is likely to make barely a dent on the world’s biggest coal industry given its vast existing production capacity.

Some estimates suggest China’s surplus capacity could be as high as 2 billion tonnes of coal a year - more than 50 percent of 2015 output - in a country with nearly 11,000 mines.

Beijing wants to cut the share of coal in its energy mix to contain pollution and meet climate change goals, while it is also trying to manage the fortunes of a struggling sector that employs nearly 6 million people.

And so far efforts to rein in production appear to have had limited market impact with Chinese coal prices losing a third last year.

“The ban on new approvals will have little impact because capacity is already too much,” Wang Zhixuan, head of the China Electricity Council, said on the sidelines of an coal industry meeting last week.

The ban, which was announced in December, was described by environmental group Greenpeace as “a nail in the coffin for king coal”, but still leaves huge mining production capacity.

China is estimated to have produced around 3.7 billion tonnes of coal in 2015 and Jiang Zhimin, vice-secretary of the China National Coal Association (CNCA), said there were enough mines in operation to produce as much as 5.7 billion tonnes, meaning that many collieries are working well below capacity.

“There’s no doubt that China’s annual production capacity is more than 5 billion tonnes and it is difficult to make changes,” said Li Junfeng, policy adviser at the National Centre for Climate Change Strategy and International Cooperation, a government think tank.

CLOSING PITS

China shut around 1,000 pits with a total capacity of 70 million tonnes in 2015 and plans to close a similar amount in 2016, the country’s National Energy Administration (NEA) said on its website (www.nea.gov.cn).

But according to CNCA data last year China has 10,760 mines, and 5,600 of them need to close to meet rules banning those with annual capacity lower than 90,000 tonnes.

According to data compiled by Reuters, the NEA approved 15 new large-scale coal mines last year, with total annual production capacity at 58.6 million tonnes, lower than the 69.6 million tonnes approved in 2014.

The pace of approvals slowed noticeably in the second half, but no data was available on newly approved projects with annual production capacity lower than 1.2 million tonnes, which are the responsibility of provincial governments.

Local governments can, in theory, make their own decisions on smaller mines. Some provinces, including Shanxi, have imposed bans on new projects.

The move to curb new approvals has so far had little impact on prices. China’s biggest miner, the Shenhua Group, was forced to slash January contract prices by 13-20 yuan ($1.97-$3.04) per tonne to secure sales.

Meanwhile, spot prices at Qinhuangdao port SH-QHA-TRMCOAL were 370 yuan per tonne, unchanged since November. Despite a 3.7 percent fall in Chinese production in the first 11 months of 2015, Qinhuangdao prices lost nearly 30 percent last year.

According to the China Academy of Sciences, raw coal production is expected to fall 4.2 percent in 2016 to 3.6 billion tonnes.

The coal association said that more than 80 percent of coal companies made a loss last year and urged the government to introduce a minimum price to support firms.

But opponents said this would merely prolong overcapacity and Wang of the China Electricity Council described the plan as “impossible and irrational”. ($1 = 6.5853 Chinese yuan)

Editing by Ed Davies

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