Coal Production Cuts Imminent, ¥30 Billion in Transition Aid For Capacity Cuts

Steel shutdowns are anticipated at the start of 2016, see Chinese Steel Industry "Sliding Into The Abyss"; Chinese New Year Could Bring Mass Bankruptcies. Now talk of coal production cuts is hitting the headlines.

Background from The Hindu: End of China’s super-boom spells pain, no end seen yetEnd of China’s super-boom spells pain, no end seen yet
Among industrial commodities, iron ore prices have tumbled 40 per cent 2015 this year due to global oversupply and shrinking Chinese steel demand, for a third year of losses, and the rout is seen stretching into 2016. In coal, thermal prices fell almost a third in 2015, hurt by waning Chinese demand and the rise of renewable energy, with Goldman Sachs and the International Energy Agency saying China's coal demand has peaked.

Both iron ore and coal have shed around 80 percent in value since their respective historical peaks in 2011 and 2008.
In 2014, the state-owned coal companies managed to earn 30 billion yuan in profits. In 2015, this profit swung more than 50 billion yuan in the other direction, to a 22.3 billion loss——as of October. Profits are down 62% and 80% of firms are losing money.
President of the China Coal Industry Association Wang Xianzheng on December 3, 2015 meeting of the National Coal Trade Fair, said the first 10 months of 2015, the national scale coal enterprises realized profits fell 62%, industry loss of more than 80%. State-owned coal enterprises overall profitability of 30 billion yuan from the previous year to a loss of 22.3 billion yuan, Heilongjiang, Jilin, Liaoning, Hebei, Shandong, Anhui provinces and six industry-wide losses.
The government is already targeting overproduction in 2016 across a range of industries and a blueprint is already in place to shutter half of the mines by 2020:
Faced with such a grim situation, the coal industry associations and relevant departments have formed the mine exit mechanism of preliminary policy recommendations, which will promote market-oriented manner to resolve excess capacity. Earlier, in January 2015, China Coal Industry Association released the "coal industry development situation and" Thirteen Five "Outlook" will be mentioned in the "Thirteen Five" period to continue to promote corporate mergers and acquisitions, 2020 , the number of coal mining companies to reduce the country from the current 6,390 to less than 3,000. This means there will be more than half of coal mining enterprises have been eliminated.
Of course, the problem of overproduction has been known for years with no results thus far...but the market is going to force the government's hand now. If creditors back off from funding these firms, they will be solely on government support:
Steel Overcapacity in China is a "disaster area." At present, China's steel production capacity of over 1.1 billion tons, more than 300 million tons of excess capacity; in addition, cement, plate glass, aluminum, etc. are concentrated industry overcapacity. In the A-share market, some companies in these industries to become Gouqietousheng "zombie companies." Wind data from the display, the current 266 "zombie" listed companies, including 197 in the iron and steel, nonferrous metals, paper , textiles, shipbuilding, petrochemical, chemical, machinery, cement, coal and other traditional manufacturing companies represented. These "zombie companies" because of poor efficiency, mainly rely on bank and government support to take care of barely survive.
The government has spoken of aid to help displaced workers and local economies hit by closures. A rumored figure is 30 billion yuan:
MIIT one person to the Weekly Times reporter revealed that the size of the first phase of the special funds may be 30 billion yuan, mainly for social security resettlement withdraw excess industry employees, the focus is to promote the "zombie companies" to exit.

But until press time reporter, how to distribute the funds to 30 billion and other issues, the relevant departments have not developed specific criteria.
A framework for dealing with the problem is in place, but will the government pull the trigger? In some cases (likely most), government firms are the key to solving the problem of overproduction:
However, the small colliery production in Jixi coal industry accounted for very little of the energy, the real impact of the entire coal industry production capacity is Dragon Coal.

Data show that Dragon Jixi Coal Group coal production in 2014 was 13.361 million tons, accounting for nearly 80% of the total coal production. As a large state-owned coal enterprises, Dragon Coal Group to move production capacity even more important.

Lee told reporters to Die Zeit said: "Due to the current coal market 'volume and price' influence, PBM is now very difficult province which has been proposed to reform it, the first step is to go now surplus. personnel shunt placement. "

Lee calls the "PBM" is the Long Branch Jixi Coal predecessor. 2004, Dragon Coal Group was formally established and reorganized Hegang, Jixi, Shuangyashan and Qitaihe "four coal city" of the Bureau of Mines, and master the vast majority of high-quality coal mines. But local residents will still be "PBM" argument retained.

Dragon Coal Group was first established just in time for the coal industry recovery, the once "do nothing to boil," the four PBM pull back from the dead line. But with the decline of the coal industry as a whole, from 2012 onwards, Dragon Coal Group started to suffer losses. Public reports, Dragon Coal Group 2012 net loss of 800 million yuan, 2013 loss widened to 2.3 billion yuan, in 2014 a loss of nearly 6 billion yuan. In the first eight months, the Dragon Coal Group reduced losses by more than 1.1 billion yuan year on year. As of June 11, Dragon Coal Group Coal Floor backlog of capital has reached 1 billion.

While successive losses, the staff has become a burdensome knife stabbing Dragon Coal Group in the heart. At present, the Dragon Coal Group employees total 240,000, this figure is higher than the 10 times larger Shenhua Energy's 214,000 employees.

Meanwhile, the Dragon Coal Group also for huge numbers of retirees and disabled workers, survivors payroll. Data show that as of the end of August 2015, Long Branch Hegang coal workers in the post 48,436 people, have to pay more than the total number of 63,400 retirees outside pension insurance, as well as disabled workers, survivors and other related costs.
Cuts hit the coal machinery industry hard. Already, some firms are subsiting on maintenance contracts:
"At present, about half of the workers did not live dry, it does not take a salary. Now the coal industry downturn, the machine is very hard to sell, only to pick up some repairs done live." Jixi Coal Mining Machinery Co., Ltd. who has more than 20 years seniority workers Wang (a pseudonym) says to reporter.
The coal industry has gone through a downturn before...in the late 1990s.
In fact, the coal industry is not the first winter hit. In the last century, the coal industry has experienced a trough. The last round of coal prices turning point occurred in 1997, when the annual profits of coal enterprises above designated size was 50.6 billion yuan. But a year later, this figure will turn profit into loss becomes -4.26 billion deficit in 1999 to further expand and become -18 billion.

But in the laws of the market, backward production can be gradually eliminated. 1998--2001 years of coal trough period, a total of 58,000 coal mines were forced to shut down, accounting for 73% of the time the total number of small coal mines. In 2002, the coal industry in the country to slash capacity situation down, and ultimately the market reversal, and ushered in after the "golden age."

However, in the eight years through the "golden age" total 3.1 trillion huge investment, the coal industry overcapacity situation again. Huge production over 50 million tons of capacity has far exceeded the consumption of coal, "to capacity" has been back on the agenda.
iFeng: 六省市国有煤炭企业全行业亏损 中央拨款安置

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