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China Gives New Incentives to Boost Coal Capacity

 

 

February 13, 2018 - China plans to increase high-quality coal supply by allowing mines to boost capacity if they shut outdated production processes, the latest effort by authorities to further streamline the industry and stabilize coal prices.


Coal companies will be encouraged to close inefficient and polluting mines and replace them with larger ones if they meet certain standards, the National Development and Reform Commission (NDRC) said in a statement on Friday.


Companies that agree to sign long-term contracts with power plants or to set up joint ventures with power companies will be allowed to expand their capacity by 130 percent to 300 percent.


The NDRC would give those allowed to boost capacity less than a year to shut outdated production, the statement said.


The incentives are the latest of several measures taken by China to foster closer ties among coal mines, coal-related businesses and power utilities as it looks to stabilize coal prices. Last year, China’s top coal miner Shenhua Group Corp took over China Guodian Group Corp and created world’s largest power utility.


In late January, four of the country’s major utilities warned of tight coal supplies after thermal coal prices on the Zhengzhou Commodity Exchange CZCcv1 hit a record of 679.8 yuan ($107.53) a ton. Spot coal prices at ports have been above 750 yuan a ton in recent weeks. 


To halt the price surge and ensure coal supplies to utilities amid frigid weather, the NDRC earlier this week ordered the major coal port of Qinhuangdao, in China’s northeastern Liaoning province, to cap FOB thermal coal prices at 750 yuan a ton from Feb. 5.

 

The power industry had borne the brunt of the price spike, coming under severe pressure from late November when coal climbed above 640 yuan a ton, the approximate level at which utilities can break even. 

 

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