• Tue
  • Jul 29, 2014
  • Updated: 4:05pm
BusinessCommodities
ENERGY

China’s coal miners in crisis

PUBLISHED : Wednesday, 02 April, 2014, 9:45am
UPDATED : Thursday, 03 April, 2014, 1:10am

The Baofu highway, a road that serves the mines in China's coal-producing hub of Ordos, was largely empty on a recent visit.

A few years ago, it was so clogged with trucks that the traffic jams were legendary, sometimes lasting several days.

Rows of once busy restaurants are closed and flanked by advertisements for discounted coal. At mines that are still operating, unsold coal is piled high and lacking its black sheen, having been exposed to the elements for months.

China's top-producing coal province of Inner Mongolia is in crisis.

Tumbling prices - caused by weaker demand due to slowing economic growth in China and a flood of cheaper imports - have forced many smaller miners out of business, while some major firms are slashing wages by up to 50 per cent to stem heavy losses.

Chinese coal prices are at six-year lows, and miners in Inner Mongolia and elsewhere are grappling with overcapacity, sluggish demand and shrinking bank credit.

The troubles faced by small miners in the region are likely to be replicated across China's coal industry, posing a risk for China's financial health if there is a wave of bankruptcies.

Weng Qingan, chief financial officer at China Coal Energy, the country's No 2 producer, said the outlook for miners across China was grim.

"If coal prices continue to slide, it will be hard for many companies to survive. The whole industry will undergo a major consolidation," he told a recent results briefing in Hong Kong.

Miners in the land-locked northern province are bearing the brunt of the slump, because they are far from coastal buyers.

Many are also a long way from railways and ports, forcing them to rely on expensive trucking for delivery.

In the Ordos mining district - which accounted for a fifth of the mainland's coal output at its peak in 2012 - about half of the 20 private mines visited last month were shut, rows of coal excavators and trucks locked away in their yards.

If coal prices continue to slide, it will be hard for many companies to survive. The whole industry will undergo a major consolidation
Weng Qing’an, China Coal Energy

It is not clear how many mines have gone out of business, or shut down temporarily, but veteran coal traders said a further drop in prices could force more than 10 per cent of about 300 mines in Ordos to fold.

"The bigger ones can stomach the losses to maintain market share, but those without financial muscle have stopped production," said Li Ji, a coal analyst at Galaxy Futures, a brokerage in Beijing.

Weng said a third of the medium to large-scale miners in China were already incurring losses after a 16 per cent drop in prices last year.

Some employees at Inner Mongolia Mengtai Coal and Power have taken a 50 per cent pay cut since late last year, sources at the firm said.

After the 16 per cent drop last year, spot prices at the top Qinhuangdao port have shed a further 15 per cent since the start of the year to 525 yuan (HK$660) a tonne, lower than 2008 levels when prices were first published.

Li estimated that miners in Inner Mongolia could be losing at least 20-30 yuan for each tonne of coal they produce.

Inner Mongolia's coal output rose 0.7 per cent to 1.03 billion tonnes last year, accounting for about 30 per cent of China's total, driven by major producers who benefit from lower costs.

Besides traditional banks, coal miners in Inner Mongolia and beyond have relied heavily on China's shadow banks - an unregulated sector made up of private lenders, trust companies and corporate bond issuers - to fund a recent expansion spree.

With banks acting as sales agents for the high-yield products shadow banks offer, major lenders risk severe losses if weak corporate borrowers default.

While the fire sale of luxury cars and homes was a common way for coal bosses to raise cash last year, the near year-long price slump has forced some shadow lenders to seize mines after owners defaulted on payments.

Still, industry turmoil may prove the catalyst for the consolidation the bloated sector badly needs, experts said.

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tksiow
If the coal miners in China/Mongolia are in crisis due to slowdown in manufacturing,then the coal mines of Australia (with a strong A$) must be in a critical situation depending on the exports to China.The Indonesian coal mines must be equally in a dilemma.
 
 
 
 
 

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