Fourteen of China"s largest coal groups, including China Shenhua, China coal energy and Shanxi coking coal Group, issued a joint statement on August 30th 2012, proposing that all of China"s coal miners appropriately control production in order to stabilize the domestic market against the lackluster demand. Insiders consider it unlikely for Chinese miners to control their production spontaneously given by the huge cost pressures involved. China"s coal market has been bearish following sharp price drops during June and July 2012, due to a slowdown in domestic economic growth. Many small and medium sized producers have suffered with profits dropping significantly. Although the move is meant to improve prices for the struggling coal sector, the joint statement, issued with the China National Coal Association, may not have any material effect on prices as it is not compulsory.
Given the varied production costs and market environments, it is still uncertain that whether the fourteen coal miners would strictly abide by the proposal.An insider told China coal Resource that "As long as the prices stay above certain levels, they may not control production. Even if they do so, their total output only accounts for less than half of the nation"s total. Other small and medium sized miners may not stick to production cut when the market gets stabilized and even rebounded. "The current suspensions of small mines are mostly mandated by the government. These large producers" reluctance to reduce output is also due to the heavy investment in new mines and in mines consolidation they have spent during the past few years.
Fears of losing existing clients and being granted with less rail quotas, which are based on this year’s actual shipments, are also something large producers worried about. Data released by these large coal giants also showed no signs of slowdown in their outputs. Shenhua turned out 25.6 million tonnes of commercial coal in August 2012, up by 8% YoY.Mr Zhou Dongzhou board secretary of China Coal Energy said that it has no plan for production suspension or reduction and would still remain the previous target of a 5% YoY growth. Shanxi Coking coal group targets its raw coal output to 100 to 120 million tonnes in 2012 from 101 million tonnes in 2010.
Source - en.sxcoal.com