China pledges more efforts to increase coal supplies, 38 coal mines in Inner Mongolia resumed operations

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Chinese authority pledged more efforts to encourage coal production amid short supply and said 38 coal mines in Inner Mongolia, a major coal production hub, resumed operations in July to help ensure coal supplies.

Production at 38 open-pit coal mines in Erdos, Inner Mongolia Autonomous Region, with a combined annual production capacity of 66.7 million tonnes, resumed in July, the National Development and Reform Commission (NDRC), China’s top economic planner, said on Friday, after previously being suspended due to a lack of licenses.

The mines are expected to start see coal output as soon as early August and will add 200,000 tonnes per day of coal output, it said.

Erdos is one of the biggest coal production hubs in China. In the first five months of the year, coal miners in the city produced an average of 53.156 million tonnes of coal per month, accounting for 16 per cent of the China’s total monthly coal output. The resumption of the 38 coal mines means coal output in Erdos will increase by about 11 per cent, said local coal industry insider.

In addition, a Politburo meeting chaired by President Xi Jinping on Friday said China should avoid “campaign-style” carbon reduction efforts.

While there were some places blindly launched projects with high emissions and energy consumption, there were others that “over-reacted” and made emission-cut plans too early, the official Xinhua News Agency said in a commentary, adding that such an attempt could affect normal economic development.

After the policymakers’ remarks, the most-traded thermal coal futures contract on the Zhengzhou Commodity Exchange tumbled 6 per cent in the night session on Friday on expectation of rising supply. An index tracking shares of mainland-listed coal miners slid by 2 per cent on Monday, compared to 2 per cent jump in the benchmark Shanghai Composite Index.

China has seen a persistent tightness in coal supply which has driven coal prices soaring since March. That sharply increased costs for coal-fired power plants and forced several regions to restrict power use during peak hours. Between March and June, the prices of 5,500 kcal/kg thermal coal at Chinese ports jumped from 570 yuan per tonne to around 1,000 yuan per tonne.

At the end of June, the NDRC tried to cool the market by saying that coal prices were expected to enter a downward channel in July due to increases in hydro power generation, resumption of operations at many coal mines after safety inspection and pick-up in coal imports, etc. However, that failed to cool the market and a benchmark thermal coal price index maintained above 947 yuan per tonne throughout the month of July.

According to the China National Coal Association, the country’s coal consumption reached about 2.1 billion tonnes in the first half of the year, rising 10.7 per cent from a year earlier, while its raw coal output increased by 6.4 per cent during the period to 1.95 billion tonnes. Meanwhile, first-half coal imports slid 19.7 per cent to about 140 million tonnes. That leaves a gap of about 10 million tonnes in coal supply.

Industry insiders say the resumption of operation at the 38 coal mines will help fill the gap. A person from a large coal miner told Yuan Talks that, based on its calculations, China’s total thermal coal inventories fell by about 18 million tonnes in July, while the 38 mines are expected to contribute about 6 million tonnes of coal output per month, about one third of the inventory decline.

In addition, the NDRC also said on Friday that China will encourage qualified coal mines to expand production capacity in an effort to boost coal supply and cool prices of the commodity.

Coal miners, who apply for capacity expansion before March 31, 2022 must promise to shut down a certain amount of outdated production capacity and complete the closure within three months after receiving the approvals, it said.

Policy makers have also unveiled plans to release state coal reserves. On July 15, the NDRC said it planned to release 10 million tonnes of coal from state reserves to help meet surging demand in the summer peak season.

The Zhengzhou Commodity Exchange raised the minimum margin requirement for trading of October, November, December and January thermal coal futures contract by 5 percentage points to 20 per cent, effective from August 4th, in a move to curb coal market speculation and rein in prices. In the night session of June 30, the most-traded thermal coal futures contract on the bourse, for September delivery, tumbled by 6 per cent.

Industry insiders say that policymakers’ latest efforts are expected to trigger some corrections in coal prices and according to previous experiences, daily coal consumption at power plants usually start to decline from mid-August as electricity consumption start to decline.