Localized strategy needed in tackling overcapacity
One of China's oldest coal mining companies called for clearer details of government guidelines for slashing overcapacity, and the measures should be adjusted according to local circumstances, the company's chairman told the Global Times in an interview on Tuesday.
Coming up with a rigid target for reducing coal production would not be the best way to tackle the overcapacity issue, said Chen Yajie, chairman of Fengfeng Group, which is owned by Jizhong Energy Group, one of the largest State-owned coal mining companies in China.
"Without detailed planning, companies could be put in a more difficult situation," Chen said.
Fengfeng Group is based in Handan in North China's Hebei Province, and the region is dependent on heavy industries such as steel and coal mining.
The company's coal mine in Fengfeng Mining District under Handan city has been in operation for over 130 years and it now has annual output of over 20 million tons of raw coal and over 10 million tons of fine coal, according to the company's website.
Considering the currently sluggish coal mining industry and the need for industrial restructuring, the central government came up with guidelines in February suggesting cutting China's coal production to around 500 million tons in the next three to five years starting from 2016.
In Hebei Province, mines with annual production capacity of less than 300,000 tons will be among the first batch that are targeted for closure, the guidelines noted.
As one of the major State-owned enterprises (SOEs) in the region, Fengfeng has many employees. Chen noted that by the end of 2020, the company will close five mines, with up to 17,000 employees potentially losing their jobs.
"Some of them signed contracts with the company, and some of them are temporary workers," he said.
Cutting carefully
During the next five years, Hebei is planning to cut annual coal output in the province to 50 million tons, and the number of coal mining firms to under 20, according to the local government's 13th Five-Year Plan (2016-20) published on Tuesday.
The province has 85 coal mines now, and annual production capacity of 92.52 million tons, and the first step in reducing production is to calculate the production capacity of each mine over a period of 276 working days in a year, which the authorities have set as a way to curb output, the local government's website showed. And then, those mines that are below the necessary capacity will be shut down.
"It's still very unclear," Chen told the Global Times on Tuesday. For example, the local government should fully evaluate the company's profitability as well as its inventory of different coal products, he noted, and the policy for reducing capacity should be more adjustable.
"Not all the coal products are facing overcapacity issues. For example, products such as coking coal and meager-lean coal have recently seen price increases. But the production of steam coal, used for power and heat generation, must be controlled," he said.
The price of coking coal has been increasing in the past few days, domestic financial news website cnstock.com reported on Tuesday. For example, the price was 719 yuan ($111.1) per ton on Tuesday, up 7 yuan per ton on a day-to-day basis.
However, setting up policies for different kinds of coal products in tackling overcapacity will be difficult, said Lin Boqiang, an energy expert at Xiamen University, on Wednesday.
But coming up with key performance indicators (KPI) to decide which mines to shut down would be more "feasible," Lin told the Global Times.
More market-driven
"One thing for sure is that more detailed plans will be coming up soon, and local governments will be expected to play bigger roles," Lin said, noting that KPI will help to understand how well companies are operating, including their profit margins and products.
Local coal mining companies in Handan are still waiting for those plans for the moment, and some of them have called for more market-driven solutions in dealing with overcapacity, noted Chen, the chairman.
"Chronically money-losing coal producers should be shut down to make room for those that are competitive," he said.
