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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Massive Protests Over Chinese Coal Closure

Change is coming rapidly in the global coal sector these days. With key producer Indonesia reporting this week that exports from its South Kalimantan region fell 9.8% in 2015 — while stats in major consuming nation India showed that imports to power plants fell 9.6% in the ten months between April 2015 and February 2016.

But one of the most critical points this past week came a long way from either of those locales. In a small town on the northern Chinese border.

Related: How Sustainable Is This Rally?

That’s a place called Shuangyashan. Where reports over the weekend suggest a major confrontation is brewing over big changes happening in the Chinese coal sector.

The Financial Times reported that thousands of workers at local coal mines here have taken to the streets in protest of late after local mines were apparently idled as part of a plan from Beijing to restructure and downsize the Chinese coal sector.

The massive protests reportedly broke out after the state-owned firm running the Shuangyashan coal mine shut down the operation months ago. And then last week announced that it will pay no further restitution to workers who lost their jobs in the shutdown. Related: What The ECB Actions Mean For Oil

Laborers took to the streets afterward to protest what they say amounts to months of unpaid wages. This problem that is reportedly becoming increasingly wide-spread, as China continues to shut down overcapacity in the coal and steel sectors — with Beijing telling facility owners they need to bear some of the costs for such mothballing.

Mine owners are apparently reluctant however, to take on their share of costs, leading to tensions such as those now erupting in Shuangyashan.

All of which tells us a few things. First, reduction of overcapacity in China is proceeding — with output of commodities like metallurgical coal having fallen 10% across the country so far in 2016. Second, the process isn’t going to be smooth. This raises the potential for significant supply dislocations if labor protests break out on a wider scale. Related: Nat Gas Investment Outlook Is Bleak

There’s even a chance that Beijing could backtrack on the downsizing if things get bad enough. Meaning that things look very uncertain right now in this critical market — and thus in the global coal sector for the time being. Watch for more developments in China’s coal production and its mining operations.

Here’s to getting back in the black,

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By Dave Forest

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