21 February 2019

Price bounce a blip — coal still a buyer’s market

A short-lived rebound on Wednesday in the benchmark Bohai Rim Steam Coal Price Index perked investors up with hopes of a silver lining in the crumbling coal industry. But reports of a blockade at a power station in Shanxi province last week just go to show that a sustained change in fortunes for the faltering industry is still some way off.

The incident started on last Monday when a black sedan mysteriously pulled up at the main entrance of the Datong Second Power Plant operated by GD Power Development (600795.CN), preventing as many as 600 coal-hauling trucks from getting inside the complex, China Business News reported. The sedan belonged to the provincial government-backed Shanxi Coal Transportation and Sales Group, an anonymous source was quoted as saying. The occupants of the car weren’t budging but the vehicle was eventually removed and the trucks carrying coal from Inner Mongolia were allowed in. 

Such open confrontation between two state-owned enterprises is rare on the mainland and gives a hint of what is wrong in the energy sector there. According to its website, the Datong Second Power Plant was built in 1978 to make the most of the abundant coal resources surrounding the city and ensure the power supply to Beijing. It used to be fed by the Shanxi Coal Transportation and Sales Group, the monopoly distributor of Shanxi coal.

When the coal market was on a bull run a few years ago, Shanxi Coal Transportation and Sales Group didn’t have to worry about bringing in business — it had a captive market supplying coal from local sources like Datong Coal Industry Co. (601001.CN) to the province’s power plants. But those good days are over. GD Power Development now would rather fuel the station with cheaper coal from Inner Mongolia, the daily noted.

The incident reflects not only the lack of competitiveness of Datong Coal Industry but it also reminds investors that thermal coal is still a buyers’ market on the mainland because of excess capacity. And for that reason alone it’s still too early to bet on a comeback for coal in China.

– Contact the writer at [email protected]



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