North China's Shandong Province announced plans for a sweeping consolidation of the local coal industry that will reduce the number of coal enterprises to no more than 60 and see the closure of small-scale mines.
An announcement from the provincial government said the consolidation should take place via mergers and acquisitions and be completed by the end of 2015. State-owned enterprises will be able to transfer assets between themselves while privately-held companies can sell equity.
The number of coal enterprises currently operating in the province was not stated, but coal industry analyst Zhang Zhibin told Interfax on Monday that there are at least 150 companies.
By acting now the local government is taking advantage of the deep industry downturn this year to force through the integration, a move that should help control production and put a floor under coal prices that have fallen more than 20 percent since January, said Zhang.
Local miners' sales revenue and profits fell 15.2 percent and 17.86 percent, respectively, in the first half (H1) of the year, the Shandong Coal Industry Bureau (SCIB), a government-backed body, said on Sept. 5.
China's coal industry has recently come to the end of a 10-year golden period that saw small miners exploit every opportunity to bring previously untapped resources into production to meet surging energy demand. Analysts say the resulting overcapacity and weakening economy will force most of those companies out.
The announcement also called for the closure of all provincial coal mines with annual production capacity below 300,000 tons by the end of 2015, but that could be a drawn-out process.
Local governments typically carry out an assessment of a coal miner's resources and fixed assets and set compensation amounts significantly lower than the true market value, which often leads to protracted negotiations, an industry insider who requested anonymity told Interfax on Monday.
Like many other coal producing regions, Shandong is under pressure from the central government to reduce energy intensity, curb environmental damage and improve safety. The 12th five-year plan (2011-2015) for the provincial coal industry is targeting energy consumption of 0.85 tons of standard coal per RMB 10,000 ($1,570) GDP unit, representing a reduction of 17 percent from the 2011 level and 35 percent from 2005.
Only last month the SCIB ordered safety inspections of small local coal mines and threatened to close those that didn't meet standards, the official Xinhua news agency reported. Between January and the end of August seven miners died in six coal mine accidents in the province.
Shandong-based Yankuang Group Co. Ltd., the fourth largest state-owned coal enterprise in China and parent of Hong Kong, Shanghai and New York Stock Exchange-listed Yanzhou Coal Mining Co. Ltd., stands to see a sizeable increase in market share as a result of the consolidation, said Zhang.
The province accounts for 10 percent of China's coal consumption but produces less than five percent of total output, and Yankuang is helping to redress that imbalance by producing coal overseas in countries like Australia and shipping supplies to the province, the analyst noted.