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Beijing to avoid radical coal shift after 2016 turmoil
March 7, 2017 / 4:44 AM / 8 months ago

Beijing to avoid radical coal shift after 2016 turmoil

BEIJING (Reuters) - China will not force coal mines to cut output on a large scale if prices remain stable, the government said on Tuesday, a sign Beijing may try to avoid radical policy shifts after the upheaval caused by efforts last year to tackle excess capacity.

Piles of coal are placed at a yard in Shuangyashan, Heilongjiang province, China February 16, 2017. REUTERS/Sue-Lin Wong

In a statement, the National Development and Reform Commission (NDRC) said provincial governments and relevant agencies would be free to decide whether to implement cutbacks at inefficient mines.

As long as prices remain within the current range, the national economic state planner said it will be satisfied with market conditions and will not introduce any broader cuts.

Analysts and experts said the flexible tone reflected a more cautious approach to policymaking after drastic limits to miners’ operating rates last year pushed the nation to the brink of a winter heating crisis.

“NDRC is unlikely to introduce any form of output cut, as it caused too much turbulence to the market last year,” said Zhang Wuzong, president of Shiheng Special Steel Group in Shandong, on the sidelines of parliament’s annual meeting.

The government’s challenge is to ensure utilities - the main consumers of thermal coal - and miners are still profitable, to protect millions of jobs and power supplies for the world’s largest population.

China accounts for half of global thermal coal demand, with the majority of its power plants using thermal coal as fuel.

In April last year, Beijing restricted the number of days miners could operate each year to 276 from 330 days to help get rid of chronic oversupply and cut the use of dirty fuel and shift to renewable energy like wind.

The policy constricted supplies and caused a historic spike in thermal coal prices, forcing the government to reverse itself in November to avert a winter heating crisis.

In recent months, futures prices for coal have rallied on speculation the government would reintroduce those tough measures once the peak winter heating season ends.

The statement on Tuesday did not say anything about the number of days mines could operate in a year.

Any additional moves would be on top of the 150 million-tonne reduction this year, announced on Sunday and aimed at getting rid of outdated, inefficient mines.

Most of that capacity is already idled, so analysts and traders say they are more interested in other steps, which would have a bigger impact on supplies and prices in the short term.

In the meantime, with spot physical prices around 650 yuan ($94) per tonne, the government is content to stand pat.

“The government will not undertake the production cut policy if prices are above 600 yuan per tonne, unless prices fall below 500,” Fu Deling, analyst with Xinhu Futures in Hangzhou.

($1 = 6.8978 Chinese yuan)

Reporting by Beijing newsroom, Meng Meng and Josephine Mason in BEIJING, Ruby Lian in SHANGHAI; Writing by Josephine Mason; Editing by Christian Schmollinger and Tom Hogue

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