China’s Shanxi Halts New Coal Mine Projects to Ease Supply Glut

The Shanxi province in northern China, one of the nation’s top coal producing regions, won’t approve new projects until 2020 to ease a supply glut.

The region won’t add new capacity other than that which is already under construction, the provincial government said in a document published on its website this week. New projects replacing existing capacities will also be allowed to proceed, it said.

More than 70 percent of coal companies in China, the world’s largest consumer of the fuel, were unprofitable as of November amid low prices, according to the China Coal Industry Association. This year will remain difficult for the industry as overcapacity is expected to persist, the association said on its website Jan. 23.

“The move by Shanxi province will have some impact on easing oversupply in the longer term,” Deng Shun, a coal analyst with ICIS-C1 Energy, said by phone from Guangzhou. “For this year and the next, we still expect to see peak coal capacity additions, so prices will remain weak.”

Shanxi produced about 960 million metric tons of coal in 2013. Its production capacity was 1.36 billion tons, according to the provincial coal industry bureau. The price of benchmark spot coal with an energy value of 5,500 kilocalories a kilogram averaged 500 yuan ($80) a ton at the port of Qinhuangdao on Jan. 25, down 13 percent from a year ago, data from the China Coal Transport and Distribution Association show.

China’s coal production probably fell 2.5 percent in 2014 from a year earlier, the first decline since 2000, after the government asked the nation’s 14 largest producers to cut output by 10 percent last year, according to the coal association. The country may shut more than 100 illegal mines with as much as 250 million tons of capacity this year, state-run China Coal News reported on Jan. 24.

— With assistance by Jing Yang

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