With 13 weeks of continuous price drops, coal prices reached CNY 626 per tonne in August down 20.5% from that of early May, while storage climbed to a historical high of more than 18 million tonnes at China's major coal ports. According to an analysis from the Shandong Provincial Coal Transporting and Maketing Association, coal prices will remain low in the long term and the structure of China's power supply is expected change as the coal industry will enter an adjustment period featuring high costs and low profits.
Mr Yang Dongliang diretor of the State Administration of Work Safety said that many small and mid sized coal mines have been suspended or closed, while bigger companies have started to reduce output to control the deficit in leading coal producing provinces including Shanxi, Shaanxi, Guizhou and Shandong. Another 625 small mines will be closed by the end of this year.
Mr Guan Dali analyst at www.cnchemicals.com said that the problems facing China's coal industry revealed when the profits of coal entrepreneurs and transporters started to shrink. Severe overcapacity in many coal producing provinces has led to overstorage amid sharp decreases in power generating capacity among thermal power companies. Considered to be most famous coal-producing province, north China's Shanxi Province produced 860 million tonnes in 2011 compared with the government set target of 780 to 800 million tonnes.
Mr Wang Hongying dean of the Macroeconomic Research Institute under the Shanxi Provincial Development and Reform Commision said that a lack of monitoring regarding domestic and overseas demand and supply has also been blamed. Increasing import volumes have impacted the domestic market as the international coal price is CNY 100 lower than China's price. Rising costs during middle trades have had an effect as well. Production costs end up accounting for just half of the final price, while the other half is created during circulation.
Mr Ji Mingde deputy of the Shanxi Economy and Information Committee said that coal merchants are working with power companies to find a way out. The combination of the two industries, referred to as the coal power pool project is expected to save both sectors.
The Xishan Coal and Electricity Group, the largest coking coal production base in Shanxi has purchased shares of another two electricity companies, the Wuxiang Hexin and Xingneng power companies.
Mr Li Shian vice manager of a power plant owned by Wuxiang Hexin said that the purchase has benefited the plant. The coal company and power plant can jointly withstand crises concerning supply and demand or technogical issues.