A coal mine in Huaibei, East China's Anhui Province Photo: IC

The recent scorching heat around the country has failed to warm up the country's coal market, leaving some local governments to roll out stimulus packages to ignite the struggling industry.

Starting from Thursday, authorities in North China's Shanxi Province have suspended two administrative charges imposed on local coal ­miners, which total 15 yuan ($2.45) per ton.

As of Monday, nine mainland-listed coal companies have said the suspension of the two charges - environmental protection fee and industrial transformation development fund - will help them increase profits by 899.5 million yuan in total, according to data compiled by the Global Times.

These are part of 20 measures recently introduced by the Shanxi provincial government to boost the local coal industry, as sluggish market demand and falling coal prices have continued to squeeze profits of coal miners.

In the first five months of this year, 44.5 percent of the coal companies in the province reported losses totaling 661 million yuan. Meanwhile, 149 local coal companies stopped production, accounting for 43.4 percent of all companies that have stopped production in the province from January to May, according to data from the provincial statistics authority.

Stimulus package

The 20 measures, which are categorized into short- to long-term ones, include encouraging local power plants to purchase coal produced within the province, arranging trains to transport 1 million tons of Shanxi-produced coal per month to central and southern provinces, promoting the integration of coal miners and power plants, as well as improving coal spot and futures trading.

"The short-term measures are aimed at reducing coal companies' financial burdens, medium-term measures are intended to facilitate coordination between coal miners and power companies, while long-term measures will aid the modernization of coal mining industry," Wu Yongping, head of the Shanxi Provincial Coal Industry Bureau, told local newspaper Shanxi Daily on July 28.

The coal industry serves as a pillar industry for Shanxi's economy. Affected by the sluggish coal market, the province's GDP growth rate decelerated to 9 percent year-on-year in the first half of 2013, from 10.1 percent in the same period a year earlier. 

Li Xiaopeng, governor of Shanxi Province, held talks with China's five major power generation companies in early July, with the aim to boost their long-term cooperation with Shanxi-based coal miners.

"Shanxi's short-term measures could help ease the production costs of smaller local coal miners, relieve their financing difficulties, and increase their sales revenue," Li Ting, chief analyst at Shanxi-based Chang'an Energy Consulting, told the Global Times Monday.

"The medium- and long-term measures, although set in the right direction, are more symbolic," he said.

Regional protectionism 

Ahead of the announcement of Shanxi's stimulus package, other major coal-producing provinces such as Central China's Henan Province and East China's Shandong Province have also been encouraging local power plants to purchase locally produced coal.

"Such measures amount to regional protectionism, which will hinder the central government's market-oriented reforms of thermal coal prices and efforts to curb overcapacity in the coal industry," Wang Xufeng, an analyst at industry portal sxcoal.com, told the Global Times Monday.

Wang expects coal-rich Shaanxi Province in Northwest China and Inner Mongolia Autonomous Region in North China to also follow suit to launch similar protective measures.

Local governments should not interfere with the normal business operation of coal miners and power companies, according to a guideline on deepening reforms of the thermal coal market released by the State Council on December 25, 2012.

"Local governments' measures could help local coal companies gain comparative advantages, but these measures could not change fundamentals in the domestic coal market," China International Capital Corp said in a research note published on July 29.

As long as the overcapacity ­problem weighs on the domestic coal industry, coal prices will face downward pressure, the report said.

"Coal miners that have reduced output or stopped production are mainly private companies, while many big State-owned coal firms are still increasing their output amid the market downturn," Wang said.

For instance, there are 740 coal mines currently under construction in Shanxi, and the province plans to add 120 million tons of coal production capacity in 2013, according to the Shanxi Provincial Coal Industry Bureau.

"State-owned coal miners are unlikely to trim production unless they incur substantial losses, because they not only assume the responsibility to provide employment to a large number of people, but also serve as a major source for local governments' fiscal revenues," Wang said.

Import impact 

The Bohai-Rim Steam-Coal Price Index, a Chinese benchmark for power-generating coal, dropped to 570 yuan per ton on July 31, down 9 percent year-on-year and the lowest level since the index was launched in October 2010, according to cqcoal.com.

Shanxi's suspension of the two administrative charges may lead to a further drop in coal prices, Northeast Securities said in a research note on July 31.

"Amid the sluggish market demand, Shanxi-based coal miners, whose production costs have decreased because of the local government measures, are likely to lower coal prices to grab more market share, which will lead to another round of slump in coal prices," the note said.

Analysts said the drop in domestic coal prices will dampen the appeal of imported coal.

Although China's coal imports rose by 13.3 percent year-on-year to 158 million tons in the first half of 2013, coal imports in June slumped by 19 percent over May, Chinese customs data showed.

"Imported coal not only caters to the demand in coastal areas of Guangdong and Guangxi, but also southwestern areas such as Sichuan Province and Chongqing Municipality," Liang Dunshi, deputy secretary-general of China Coal Transport and Distribution Association, said at an industry forum held Thursday in Dalian, Northeast China's Liaoning Province.

But the impact of imported coal on the domestic market will decline in the future, Liang said, citing the narrowing price gap between domestic and imported coal as the reason.

"Now the price of Indonesian coal is even slightly higher than domestic coal at the Qinhuangdao port," he noted.

China's coal imports for this year will remain at the same level or even drop from last year's 289 million tons, Liang estimated.

Coal imports should not be blamed for the woes of the domestic industry, as the imports can help increase China's coal reserves, force Chinese authorities to lower domestic logistics costs for coal, and push domestic coal miners to conduct industrial upgrade, the Ministry of Land and Resources said in an article published on its website on July 25.