China Taps Coal Giants as Asset Managers to Guide Supply Cuts

  • Miners Shenhua Group, ChinaCoal are among founding members
  • China plans to consolidate 500 million tons of mining capacity

China set up an asset-management company to reduce coal overcapacity at a time when the country is seeking to encourage consumption of cleaner fuels.

The new company will include coal miners China Shenhua Group Corp. and China National Coal Group Corp. as well as asset-management companies China Reform Holdings Corp. and China Chengtong Holdings Group Ltd., the State-owned Assets Supervision and Administration Commission said in a statement on its website Friday.

Along with plans to cut 500 million tons of excess annual production capacity by 2020, China aims to consolidate an additional 500 million tons among fewer miners, the country’s State Council said in February. The new company will push forward consolidation of coal resources held by state-owned enterprises, according to Sasac’s statement, which didn’t provide details on the new company’s structure or what other steps it may take.

The new company may buy up coal assets from state-owned companies whose main business isn’t coal or purchase poor-quality assets from miners to help them reduce capacity, said Helen Lau, a Hong Kong-based analyst at Argonaut Securities (Asia) Ltd.

“The No. 1 goal is to cut coal output and capacity from low-efficiency coal mines owned by centrally-controlled enterprises,” she said. “Shenhua and ChinaCoal may also have the opportunity to add some good-quality assets to their portfolios to replace some of their low-output mines down the road.”

About 15 of 105 enterprises overseen by Sasac own coal assets, Lau said, and some of them may be forced to hand over mines to the new company.

Coal output will fall by 280 million tons this year, National Development and Reform Commission Chairman Xu Shaoshi said last month.