The coal industry's capacity reduction will accelerate this year and withdraw 500 million tons in the mid-term

Faced with the fact that coal prices continue to fall and the industry as a whole suffers from a loss, analysts pointed out that the reduction of capacity in the coal industry is the general trend, and policies will further promote capacity reduction.
In comparison, large-scale coal listed companies with relatively strong profitability are worthy of attention
.
Overcapacity triggered price declines Severe overcapacity coupled with the impact of imported coal led to a cliff-like decline in coal prices, which continued throughout 2015
.
The data shows that the Bohai Rim Thermal Coal Index dropped from 525 yuan/ton at the beginning of 2015 to 375 yuan/ton at the end of 2015, a decline of 28.
6%
.
In 2015, the national coal output was 3.
68 billion tons, which was higher than the legal capacity of 3.
4 billion tons/year approved by the National Energy Administration
.
The price drop caused by overcapacity has caused the supply of goods in northern ports to remain tight after the long Spring Festival holiday
.
According to research conducted by Axunsi, at present, the ships pulling coal from the north are mainly concentrated at Shenhua Huanghua Port and Tianjin Port.
Last week, it took about a week to pull coal under 5200 kcal at Huanghua Port; while ships to other ports to pull coal from the market are relatively small.
However, there were only 31 coal ships at the anchorage of Qinhuangdao Port on February 26, a decrease of half from the previous month
.
Excess capacity has led to a decline in industry profitability, which in turn triggered a sharp decline in the willingness of companies to build new production capacity
.
According to statistics from the Coal Industry Association, in the first 11 months of 2015, the profits of 90 large coal central enterprises totaled 5.
13 billion yuan, a year-on-year decrease of 9.
7%
.
In this context, the current new production capacity has basically stagnated, and there will be no new production capacity that will impact the coal supply and demand pattern in the medium term
.
In response to the unfavorable situation in the industry, relevant policies were frequently issued from the second half of 2014 to the first half of 2015.
Specific measures include the issuance of the "Coal Operation Supervision Measures", the "Interim Measures for the Quality Management of Commercial Coal," resource tax reform, and the verification of production capacity to investigate and punish overproduction
.
At the same time, various localities have also introduced a series of measures to reduce the burden on coal companies, including the suspension of the collection of mining conversion funds in Shanxi Province, and the halving of expressway fees imposed on coal-carrying vehicles in Shaanxi Province
.
Policies are gradually moving closer to capacity reduction.
The Shenwan Hongyuan report pointed out that since the second half of 2014, the high level of coal relief meetings and the intensity of policy releases have exceeded market expectations, but the final results were not good.

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These policies are mainly focused on curbing the coal industry’s overproduction and reducing the burden on coal companies.
Although they have effectively alleviated the operating pressure of coal companies to a certain extent, the problem of overcapacity has not been effectively resolved.
Moreover, the burden reduction measures have reduced the industry’s marginal costs and reduced the price.
Fell further
.
"The intensive measures introduced in 2014 for coal poverty alleviation did not show results, mainly because the fundamental problem of removing coal production capacity was not grasped
.
However, recent coal industry policies have moved closer from reducing the burden on enterprises to reducing production capacity
.
" Zhuo Chuang Information Coal Industry analyst Liu Dongna told a reporter from China Securities News, “The reduction of capacity in the coal industry refers to companies with high costs, weak overall strength, poor coal quality, and serious losses, permanently exiting the market, or companies with good coal quality but smaller scale assets.
Restructuring
.
But at present, the above-mentioned two kinds of capacity reduction have not really appeared
.
” The Guotai Junan report pointed out that the current round of coal industry capacity reduction occurred during the transition period of China's economic growth shift and structural adjustment, and the potential economic growth rate is low.
During the overcapacity period in the 1990s, and the demand-side reform space was very limited
.
"If the intensity of capacity reduction is the same as the previous round, it will put excessive pressure on economic growth in the short term
.
Therefore, the intensity and progress of this round of capacity reduction will be weaker than the previous round
.
" The Guotai Junan report also pointed out that the last round of capacity reduction The surplus production capacity of China is mainly concentrated in the labor-intensive light industry represented by textiles, while the current round is concentrated in the capital-intensive heavy industry represented by steel and coal.
The fixed cost ratio in the cost structure is large, and the operating leverage coefficient is high.
Administrative measures for compulsory production cuts or even cessation of production are more costly, more obstructive, and relatively slow to take effect
.
Withdrawal of production capacity by 500 million tons in the mid-term, Deng Shun, an analyst at Axunsi coal industry, pointed out that before seeing the real capacity reduction, the unprofitable coal mines just chose to stop production, while watching whether the market will rebound, while waiting for the introduction of relevant national policies.

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"If the capacity reduction subsidy is implemented in the future, it can cover the loss of coal mine withdrawal, and the state will introduce some supporting mechanisms to help enterprises solve a series of problems of'difficulty exit', then some coal mines with backward production capacity will eventually choose to withdraw.

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"The Shenwan Hongyuan report believes that the coal industry's capacity reduction is the general trend
.
"After 2015, the policy shift to capacity reduction will truly transform the industry from oversupply to capacity reduction
.
"In particular, the local government's previous thinking based on taxation and employment has been loosened: the coal industry suffers from serious losses so that many provinces receive far less tax revenue from coal companies than subsidies provided, and the central government arranges funds for reasonable settlement of personnel.
Employment, the two major concerns of local governments have been eliminated, and the enthusiasm for reducing production capacity is very strong
.
In fact, the "Opinions on Resolving Excessive Capacity in the Coal Industry and Realizing Difficulty Development" issued by the State Council on February 5 have clarified the focus and policy of coal reduction.
The progress requires the coal industry to withdraw about 500 million tons of production capacity in 3 to 5 years on the basis of eliminating outdated production capacity in recent years, significantly reduce coal production capacity, and moderately reduce the number of coal mines
.
At present, Shandong and Shanxi have responded to the above The "Opinions" responded, but there is no relevant feedback from other regions.
There are no relevant policy details on how to implement capacity reduction, how to arrange personnel, how to support funds, and who is the main body of reorganization
.
Lin Boqiang, director of China Energy Economic Research Center, Xiamen University It is pointed out that the process of reducing overcapacity in the coal industry is complex and lengthy, and because of this, it is critical to maintain the continuity of the current policy direction
.
From this perspective, 2016 is becoming a "big year" for China's coal industry to reduce overcapacity
.
Shen Wanhongyuan pointed out that from the perspective of "the leftover is king", it is recommended that investors pay attention to the current relatively strong profitability, and the mines will not be closed due to industry reduction of capacity.
Xishan Coal Power, Lu'an Environmental Energy, Yangquan Coal Industry, Yongtai Energy and Shaanxi Coal are listed on five coal listed companies; at the same time, the acceleration of capacity reduction will also bring about an explosion of demand for coal mine non-performing asset disposal projects.
You can pay attention to listed companies such as Hyde
.