Dark days for coal industry as glut worsens

"Only if capacity drops further is there any hope of healthy growth in future."

For many troubled mines, there is no silver lining

Calls that I made recently to three contacts in the coal trading business in Shanxi province and the Inner Mongolia autonomous region went unanswered.

Liu Dongna, an industry analyst, told me that this has happened a lot in recent years as China's coal business has shifted from an industry that created billionaires to one that forced millions of employees to take lower wages or find another job.

"As industry analysts, we often call coal producers, owners of small and mid-sized mines and traders to gather information. A large number of them now cannot be reached," Liu said.

According to Liu, many coal companies cannot repay bank loans because of falling prices and weak demand, which have resulted in bankruptcies.

"Some owners skipped town to avoid debts. They changed their phone numbers, so we cannot get in contact with them again," she said.

Zeng Hao, a coal expert with Fenwei Energy Co, an industry consultancy in Shanxi province, told me some coal mines in the province are selling their output at about 200 yuan ($32.24) a metric ton, which barely covers logistics costs.

"This is the worst of times for China's coal industry and companies should not count on the government to save the market," he said. "Only large State-owned coal companies like Shenhua Group can survive ... based on some policies that have been announced to help the industry.

"Private coal companies need to rethink their strategy or just leave the industry, which is the simplest way to stop the pain."

In December 2011, the National Development and Reform Commission capped the spot price for benchmark coal at Qinhuangdao Port at 800 yuan a ton to help power generation companies, which were losing money in part due to high coal prices.

Just three years later, coal producers are willing to sell their fuel to power plants on credit.

"China's slowing economy has changed the coal industry," Zeng said. "It's time to adapt or die."

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