More Coal Mines to Increase Capacity as Higher-Than-Expected Demand Underpins Coal Price
Yicai Global
/SOURCE : Yicai
More Coal Mines to Increase Capacity as Higher-Than-Expected Demand Underpins Coal Price

(Yicai Global) Oct. 24 -- Several coal producers in Shanxi and Inner Mongolia plan to increase their output as government restrictions loosen due to a renewed market demand which may exceed expectations and prop up prices.

China's national development and reform regulator explicitly called on the coal industry to modestly increase the supply of secure, efficient and advanced coal production output to ensure a balance between market supply and demand.

Coal companies like Shanxi Coking Coal Group Co. earlier released plans to increase production from the middle of this month. So far, 85 coal mines in Shanxi province and 172 mines with a combined 534.32 million tons of production capacity in seven cities in Inner Mongolia are among the mines to up their output.

Due to tight supply and weaker-than-expected production in the wake of stricter controls and capacity cuts, the current increase in output has yet to produce an impact on coal prices, insiders believe.

However, judging from data on electricity output and infrastructure construction, the macro economy is improving, which will help prompt a rapid growth in electricity demand and in turn, lead to higher-than-expected coal demand.

Judging from the inventory at the Bohai Rim port, the coal-producing regions are facing problems such as the logistics of dispatching vehicles or applying for railroad transport permits as some rail lines are being repaired.

Thus, shipments to the port have been relatively low recently. Coking coal prices have been rising substantially since August due to strong demand from the downstream steel sector.

As the first list, did not include mines with coking coal production capabilities, coal supply has not increased rapidly as expected, while demand has shown signs of improvements.

Electricity consumption grew 6.9 percent last month from a year ago, pointing to a turnaround in the macro economy.

China's 26 major excavator manufacturers sold 5,456 excavators in September, up 71 percent year-on-year and up 25.5 percent month-on-month, in a more direct sign that infrastructure construction has increased sharply, according to data from 21-sun.com, a platform for the sale and hire of specialist heavy industrial vehicles.

As restrictions on coal capacity end, most regions have achieved a balance between supply and demand. Supply is slightly tight in only a limited number of areas, suggesting that coal overcapacity has not been fundamentally changed yet, the national development and reform commission said.

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