Coal giants' profits boom despite challenges

Bolstered by government-imposed production cuts amid robust demand – although over-supply remains an issue.
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Thermal power made up 57 percent of the nation’s total energy installation as of the end of last year, although that was down from a year earlier.

CHINA’S coal giants are raking in the money, bolstered by government-imposed production cuts amid robust demand — although over-supply remains an issue — industry officials say.

The industry’s leading companies reported combined revenue of 2.01 trillion yuan (US$318 billion) for the first nine months of the year and the 90 biggest made a total profit of 104.1 billion yuan, Wang Xianzheng, president of the China National Coal Association, said on Tuesday.

This was an increase from last year’s profits of more than 30 billion yuan, which in turn reversed the losses of 2015.

And profits for the industry as a whole jumped more than six-fold year on year to 250.6 billion yuan in the first 10 months, the National Bureau of Statistics reported on Monday.

Two years ago, coal companies had been hit by falling prices and a backlash over its perceived role as the culprit for devastating pollution and smog in northern China.

The industry has staged a comeback, “showing constant progress in profitability, which was bolstered by continuous cuts in supply and a government clampdown on inefficient companies,” Wang said.

In the 10 months to end-October, China’s coal inventory fell more than 100 million tons, according to the association.

And the number of mines has fallen to below 8,000 from about 12,000 in 2015. But consumption has increased 3.7 percent from a year ago, fueled by the country’s industrial expansion.

The official Purchasing Managers’ Index, which measures vitality in the manufacturing sector, has stayed above 51 for 13 consecutive months. A reading above 50 indicates expansion, while a reading below that signals contraction.

Alongside falling inventory, prices have continued to gain steam since a rally last year, with some areas such as Inner Mongolia seeing four-month growth in steam coal prices to around 214.2 yuan per ton in October, “which is enough for coal companies to make profit,” says the Inner Mongolia Coal Exchange Center.

While China is increasingly moving toward renewable energy — and is a world leader in this field — coal remains the backbone of the economy.

Thermal power made up 57 percent of the nation’s total energy installation as of the end of last year, although that was down from a year earlier.

“Coal is not as dirty as people imagine, especially after the nation has taken years to ‘clean’ it,” said Miao Xuegang, director of the environmental protection department in Anhui Province.

Across China, thermal power plants have been required to upgrade, ensuring that every kilowatt-hour of thermal power consumes less than 315 grams of standard coal, “which is already in the leading league worldwide,” according to the National Energy Administration.

By 2016, equipment to pump over 400 gigawatts of thermal power had been upgraded nationwide.

“New thermal power plants can’t even open if they don’t have technologies to clean coal off sulphur and nitrates,” said James Zhou, an employee at a state-owned power plant.

After sulphur and nitrates have been removed, most of the toxic gas and particular matter have been reduced, “making coal a cleaner resource,” Miao said.

Demand for coal remains robust, especially for electricity, with a government subsidy of 0.027 yuan per kilowatt-hour for clean coal power.

“This not only ensures constant power supply, but also helps fight air pollution by encouraging clean coal technologies,” Zhou said.

Subsidies have helped remove sulphur and nitration from coal and have stayed above 100 billion yuan since 2011, according to bjx.com.cn, a domestic electricity news portal.

Despite the progress, the China National Coal Association’s Wang warned that huge questions remain for China’s coal industry as it upgrades to face the future, especially when oversupply remains and renewables are racing to replace coal.

In the first 10 months, solar power accounted for almost half the country’s newly installed energy and installed wind power had increased 2.2 percent from a year earlier, China Electricity Council data showed.

“The outlook for coal use in the long-term is not optimistic,” Zhou said. “Coal-powered plants these days are trying to shift to renewable energy.”

One example is the merger of China Shenhua Energy Co with China Guodian Corp, which “in great part was because Guodian has the largest installation of wind power among China’s five electricity giants,” reported jiemian.com, a financial news portal.

Acquiring 25.83 gigawatts of wind power from Guodian, Shenhua — China’s largest state-owned coal miner — will find it easier to diversify its portfolio from coal-powered energy.

Meanwhile, coal companies continue to face massive challenges. The top 10 account for 80 percent of the 90 giants’ profits — “with most of the rest on the brink of losses,” Wang said. “Burdened with heavy debts and unable to pay salaries on time.”

And although supply has been cut, there is still a significant over-supply.

Coal companies must take a longer term approach and thoroughly plan their business strategies to tackle any problems that may arise in the future, Wang said.

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