China’s Coking Coal Industry Calls for Supply Curbs and Consolidation

China’s coking coal industry needs supply curbs and consolidation, the head of the largest miner in the segment said this week, as quoted by Bloomberg.

The government needs to place limits on supply, consolidate smaller miners into large state-owned entities, and build strategic reserves of coking coal, Zhao Jianze, chairman of Shanxi Coal Energy Group told Chinese media.

Coking coal is used in steelmaking and China’s domestic reserves of it are nowhere near its thermal coal resources, which has made it dependent on imports. This vulnerability was highlighted several years ago when a political spat with Australia led to a ban on coking coal imports from that country, which lasted for two years.

During the ban, China upped its imports from alternative suppliers, notably Russia and Mongolia, and made an effort to lift domestic supply. After the end of the ban, Australian coking coal imports picked up last year but remained lower than they were before the ban thanks to alternative supplies.

China has a booming steelmaking industry which consumes about a fifth of the country’s coal supply and produced over a billion tons of steel per year over the last three years. However, there are plans to reduce that amount in order to hit transition goals that see CO2 emissions peaking by 2030 and China becoming a net-zero economy by 2060.

Reaching the first of these goals may not be as challenging as it seems amid a slowdown in the country’s construction sector, which observers expect to dampen demand for steel. Related to this are low steel prices that are hitting steel millers’ margins, discouraging production growth.

In this context, the call by Shanxi Coal Energy Group’s Zhao seems like the most obvious course of action: stronger state control over the industry means stronger control over supply to the potential benefit of coking coal producers.

By Charles Kennedy for Oilprice.com

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