A Way Out for the Coal Industry
China's coal industry is slipping deeper into the red. Among all the sectors that witnessed declining profits, it is suffering the most. According to figures from the National Bureau of Statistics, in December 2014, the coal mining and washing sector experienced an overall profit shrinkage of 20.78 billion yuan ($3.32 billion), owing to a year-on-year ex-factory price decrease of 12.2 percent. Data from the China National Coal Association also show that more than 70 percent of Chinese coal enterprises are suffering losses, with frequent occurrences of problems like delays in salary payment. What has dragged China's coal industry into such a morass?
First of all, the current economic slowdown has affected the demand for coal from downstream industries, for the trajectory of the coal industry falls closely in line with that of the economic cycle. If China continues to rely on real estate and infrastructure construction to drive demand, coal enterprises will catch a break. Since China's economic development has begun to shift its focus from quantity to quality, its growth is predicted to linger around 7 percent in 2015, and the coal industry is far from seeing the light at the end of the tunnel.
Overcapacity has led to dog-eat-dog competition, keeping coal prices low. Given China's abundant coal resources, some local governments tend to blindly expand production capacity when the coal price climbs. China has already had 4 billion tons of coal production capacity in place and 1 billion tons under construction, but coal imports remain huge. For one thing, overcapacity continues to fuel competition; for another, large coal imports force domestic enterprises to lower prices. In this sense, overcapacity has become quite a hurdle for the coal industry.
In addition, falling petroleum and natural gas prices have left the coal industry suppressed. When oil prices are too high, people are more likely to turn to coal. However, when oil is priced equivalent to or lower than coal, people tend to buy oil.
Beyond all that, extensive coal exploitation has caused severe damage to the natural environment, which is unsustainable. With the elevation of environmental awareness, calls for clean energy have become louder. Consensus has been reached that authorities should rein in coal exploitation to reduce the burning of fossil fuel, increase the proportion of technology-dependent production capacity and improve resource utilization efficiency.
However, coal will continue to maintain a dominant position in China's energy consumption structure in the foreseeable future. The nation abounds in coal, but it's poor in oil and natural gas resources. Coal accounts for more than 90 percent of total primary energy resources. In the next few years, the proportion of coal against total primary energy consumption will be contained below 62 percent. So how then should the beleaguered industry swim out of the troubled waters it finds itself in?
The coal industry should pursue a transformation toward cleanliness, high efficiency and low carbon. In the past few decades, outdated technology and low efficiency have brought about numerous environmental problems and mounting emission reduction pressures. The success of revolutionizing the coal industry lies in pushing forward clean and high-efficient coal exploitation and utilization.
Large and medium-sized coal enterprises should shift to the coal chemical industry and carry out industrial restructuring and upgrading. Coal gasification and coal-to-liquids processing, to some extent, will alleviate overcapacity and lower China's dependence on oil and natural gas.
High-sulfur, high-ash and low-quality mines should be eliminated, and high-efficiency coal enterprises should be preserved and supported in order to export some of the production capacity to other countries and compete with overseas rivals for a foothold in the global market. As China is dynamically promoting the Silk Road Economic Belt and 21st Century Maritime Silk Road initiatives, domestic coal enterprises should put equal emphasis on enhancing coal quality and exploitation efficiency and setting their sights abroad, all of which will help them avoid being affected by the gloomy domestic market.
In the face of economic slowdown, the new energy revolution as well as the elevation of environmental awareness, reform of the coal industry is quite necessary. Efforts should be made to shift from raw coal production and marketing to commercial coal marketing and clean coal production. Large coal enterprises should try to engage in the downstream coal chemical industry. By improving quality, domestic-produced coal will be able to remain relevant in the international market. Only in this way can China's coal industry blaze a path to prosperity.
This is an edited excerpt of an article published in Economic Information Daily
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1.24 tln yuan
Assets of China's Social Security Fund in 2014, with a return rate of 11.43 percent
Batches of substandard imported food uncovered by Chinese authorities in 2014
Number of overseas milk producers approved by Chinese authorities by the end of 2014
Decrease in China's domestic consumption of luxury goods in 2014
The number of P2P lending platforms that ran into trouble in China in January
The combined length of new railways that were put into operation in 2014