Profits of China coal producers surge on capacity cuts

Chinese coal producers that for years struggled to keep afloat are bouncing back with substantial profit growth as the industry's ongoing downsizing has helped prop up prices and regain a supply-demand balance. 

Combined profits of large coal enterprises with annual turnover of at least 20 million yuan (nearly $3 million) came at 123.34 billion yuan in the first five months, nearly 90 times that of the same period a year ago, according to statistics released at a national coal trade fair Thursday. 

"The sector's performance is improving steadily," said Wang Xianzheng, president of the China National Coal Association, at the event. 

Thanks to measures to tackle over-production, China's coal industry is gradually back on track. As of the end of May, around 97 million tonnes of coal capacity had been cut, accounting for 65 percent of the annual goal. 

Wang said a balance had been basically reached, citing stable increases in coal output, imports and consumption. 

The Bohai-Rim Steam-Coal Price Index, China's benchmark coal price, rose for the sixth straight week to 582 yuan per tonne on Wednesday, 38 percent higher than a year ago. 

But Wang cautioned against over-optimism, saying more time was needed to embrace a comprehensive recovery as the bouncing-back was still short and entrenched problems remain unsolved. 

"Despite the rising profit margin, a majority of coal firms are still in hardship due to lingering pressures from keeping operation and stability in mining areas," Wang said. 

Profits were highly concentrated, with five industry giants, including Shenhua Group and Shandong Energy Group, raking in nearly two-thirds of the total in the January-May period. 

Risks for coal companies will be on the rise because of more capacity being phased out, an increasing number of those laid-off in need of re-employment and rising debt burdens, Wang said. 

As part of the effort to overhaul the economy, the Chinese government will keep its firm stance on excess capacity cuts with plans to eliminate 150 million metric tons of coal capacity this year.