China coal firms told to cut back production days

China has ordered its coal mines to reduce production days in it attempts to reduce supply in a slowing economy, but experts feel that the current economic slowdown will make it difficult for companies to erase losses in the next several years, Chinese media reported.

Four Chinese ministries, including the National Energy Administration, have recently released a document ordering all coal mines to cut their production days, the Shanghai Securities News reported.

All coal mines, except those that produce specific types of coal or have specific safety requirements, can only produce at most 276 days a year, against the previous 330 days, the document said

China’s Shanxi Province has also ordered all integrated coal mines under the five large provincial coal enterprise groups to stop output and construction to rectify safety risks, the newspaper said.

“Apart from preventing hidden safety troubles, the main purpose of these policies is to reduce supply in China’s coal sector, which is seriously oversupplied,” Xing Lei, a veteran industry expert and a professor at the Central University of Finance and Economics, told the Global Times on Tuesday.

The government said in February that China will cut 500 million tons of coal production capacity in the next three to five years. About 90 percent of coal enterprises in China recorded losses in 2015, China Business News reported in January.

Xing said the latest move to cut production won’t immediately have an effect. “Industry-wide losses won’t vanish in the next several years,” he said.

He cited the weak economy and China’s economic transition, which have put heavy pressure on the coal industry.

The current market demand is also sluggish. In most time of the first three months, China’s six major power generation groups consumed less coal than in the corresponding period of 2015, Xu Gao, chief economist of China Everbright Securities Co, was quoted as saying in a note sent to the Global Times.

Faced with these difficult conditions, coal companies have taken different strategies, Global Times said

One of the largest coal enterprise in the country, Beijing-based China Coal Energy Co, has cut its production target for 2016, while Shandong Province-based Yankuang Group has decided to increase production in 2016

 

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