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TABLE OF CONTENTS Feb 3 - 9, 2014 Volume 99 Number 51 - 0 comments

Coal is still king in China

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2014-01-29

VANCOUVER — Shaanxi Coal Industry is preparing for its initial public offering (IPO) and expects to raise $1.6 billion by selling shares representing just 10% of the company. It’s a good reminder that coal is still big business in China.

 

China is reducing its reliance on coal for power generation, but that shift will take decades, and at the moment coal remains king in the country. China is expected to produce 4.1 billion tonnes of coal in 2014, which is vastly more than the 1 billion tonnes produced in Europe or the U.S., and represents almost half of global output.

 

Shaanxi’s IPO is also a new start for the Shanghai Exchange, where new listings were halted for more than a year while authorities cracked down on fraud and misconduct among advisers and issuers.

 

China was the world’s largest IPO market in 2010, which saw IPOs in Shanghai raise a record US$71 billion. But listings were suspended in October 2012 to give regulators time to hunt down fraudulent operators. Since the freeze ended on Nov. 30, more than 700 companies have applied to sell shares.

 

Shaanxi, the third-largest coal producer in China, is one of those applicants. China’s two larger coal producers — China Shenhua Energy and China Coal Energy — both trade on the Shanghai Exchange, and saw their shares lose more than 40% in 2013 on weak coal prices.

 

Along similar lines, Shaanxi expects to raise only half as much in its IPO as initially planned. Post-IPO, the company’s controlling shareholder will remain the provincially owned Shaanxi Coal and Chemical Industry Group.

 

The IPO should raise $1.6 billion, which will make it the largest offering since September 2011, when Sinohydro Group raised $2.1 billion, according to Bloomberg. Shaanxi has 9.7 billion tonnes of coal reserves, and its 17 operating mines produced 97 million tonnes of coal in 2012.

 

In another reminder of the immense scale of China’s coal industry, the National Development and Reform Commission (NDRC) — China’s top planning authority — says it approved the construction of 15 new coal mines in 2103 that will add more than 100 million tonnes to China’s annual coal-production capacity. The increase is equal to 10% of the annual output in the U.S.

 

The new mines will add six times more capacity than was added in 2012. Production climbed only incrementally in 2012 as China consolidated its coal output, closing small mines located near large urban centres and shifting production to less populated, western provinces.

 

The shift is intended to ease choking air pollution in cities like Beijing, though any pollution improvements in Beijing will be of little help to residents of those western areas where coal mining is on the upswing.

 

Inner Mongolia, for example, is seeing major coal development — but it’s one of the three Chinese provinces with the most deaths due to coal emissions.

 

Safety is another driver behind China’s shuttering of smaller mines. Chinese coal mines are notoriously dangerous places to work. In 2011 the coal-mine death toll stood at 1,973. In 2012 that improved to 1,384, and in 2013 Beijing says 1,049 coal miners died at work. Critics say the actual figures are higher because mining companies regularly under-report accidents and fatalities.

 

With 300 million tonnes of old coal production capacity shuttered in recent years, China got back to building new coal mines in 2013, as part of its aim to put 860 million tonnes of new coal capacity into production between 2010 and 2015. And as with many Chinese initiatives, the new concept in coal mining is to be bigger and more efficient.

 

China isn’t building coal mines so much as it is building coal-mining centres, with huge open-cast mines, coal-fired power plants and coal chemical plants all integrated. Last year’s 15 projects cost $8.9 billion.

 

The number of mines, added capacity and total investment in 2013 is likely even higher, as the 15 projects totalling 100 million tonnes includes only mines approved through the national government. Mines producing less than 1.2 million tonnes per year are regulated by local governments and are not included in that list.

 

It also takes the NDRC months to announce new mine approvals, so more projects could have been green-lighted in the fourth quarter.

 

China is working to reduce coal’s role in its national energy structure. In 2012 coal provided 66.8% of China’s power. The government is aiming to cut back to less than 65% by 2017.

 

But coal consumption should rise in absolute terms, because China’s total energy requirement is expected to climb 4.3% per year from 2011 to 2015.



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