China’s Biggest Coal Miner Digs On as National Output Slips

  • China Shenhua Energy Sept. output up 14% vs national 12% drop
  • Government seeking to ease output restriction to cool prices

China’s biggest coal miner has sprung into action as the government calls on major producers to ease supply tightness before winter.

China Shenhua Energy Co. output jumped more than 14 percent in September from the same month last year, while national production was down more than 12 percent, company and government data Wednesday showed. And as national coal production has plummeted almost 11 percent in the first nine months of this year, it’s been business as usual for Shenhua, which has mined 1.3 percent more.

Output from the world’s biggest producer has fallen after the government of President Xi Jinping ordered miners to lower output to help erase a glut. After output slumped and prices surged more than 50 percent this year, the nation’s top economic planner fined tuned the policy last month to allow some miners to increase activity.

"Shenhua’s mines are relatively low cost, so they have more incentives to increase output given current coal prices," Leo Wu, an analyst at Guotai Junan Securities Co., said by phone from Shenzhen. "Also most of the company’s mines are considered advanced and allowed by the government to boost production."

Supply Side

As part of the country’s supply side reforms regulators sought to reduce the country’s overcapacity and ordered miners to lower output to the equivalent of 276 days of production, from the standard 330 days. Qualified coal mines will be allowed to increase capacity in the fourth quarter beyond the 276-day limit, a National Development and Reform Commission official said Oct. 13.

Huang Qing, Shenhua’s Beijing-based board secretary and spokesman, wasn’t immediately available for comment. Shares rose 2.1 percent to HK$16.34 as of 11:59 a.m. Hong Kong time, compared with a 0.7 percent gain for the city’s Hang Seng Index.

China Coal Catch-up

“As the biggest miner, it’s not that difficult for Shenhua to pick some low-cost and high-quality coal mines to resume or increase output immediately,” said Laban Yu, head of Asia oil and gas equities at Jefferies Group LLC in Hong Kong. “Other major state-owned miners such as China Coal should be able to catch up quickly and we will see a major coal production hike in October.”

China Coal Energy Co.’s output was down 11 percent in September, the company said in a statement earlier this week. Zhou Dongzhou, China Coal’s Beijing-based spokesman, didn’t answer two calls to his office seeking comment.

China’s benchmark power-station coal at the port of Qinhuangdao rose to an average of 610 yuan a ton as of Sunday, the highest since May 2013, according to data from the China Coal Transport and Distribution Association.

— With assistance by Guo Aibing, and Jing Yang

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