22 January 2019

Coal miners buried deep in a buyer’s market

Chinese coal miners have failed to mark up product prices despite a rise in rail transportation costs. This sends another warning signal that the sector’s bargaining power has eroded.

Slower economic growth, import competition and the government’s clean-energy push have together presented the coal industry with its most severe challenge in years. Overcapacity built previously during the industry heydays hasn’t helped.

Since hitting a recent high of 641 yuan (US$105) per ton earlier, the spot price of 5500 kcal/kg thermal coal has slipped for the sixth consecutive week to 562 yuan per ton in the Qinhuangdao port market, according to the China Securities Journal.

As low prices continue, miners and shippers will obviously suffer. Meanwhile, the recent default of a trust fund product invested in coal projects, involving Jilin Province Trust, also rings the alarm bell that more problematic wealth management products of such type may be lurking.

If assets are forced into auctions to meet repayment obligations, or if there is an acceleration of the trend of coal-mine sales, industry consolidation will gather pace, leading to less fragmentation.

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EJ Insight writer

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