Coal to stay oversupplied

The Chinese coal market will continue to suffer from oversupply this year and coal prices may further drop, experts said on Sunday, citing reasons like weak demand and competition from imported coal.

"The coal industry is facing a long-term downturn, like the steel industry," Li Chaolin, an expert at China Coal Transportation and Sale Society, told the Global Times.

The thermal coal price has dropped more than 12 percent to 533 yuan ($85.6) a ton since the beginning of this year, according to industry information portal cqcoal.com. Experts say the price may drop further given overcapacity and weak demand.

"There is an overcapacity in almost all kinds of coal pro-ducts," said Guan Dali, an analyst at commodity information provider Zibo Zhongyu Information Technology Co, noting that weakening demand in downstream power plants and steel makers are the main reason.

Power plants are the major consumer of thermal coal, but growth in China's power consumption is slowing down amid the overall sluggish economy - resulting in a decline in thermal coal demand.

In the first two months of 2014, China consumed 824.3 billion kilowatt-hours of electricity, up 4.5 percent year-on-year. But the growth is 1 percentage point lower than the same period last year, data from the National Energy Administration shows.

The steel industry, the main -consumer of coking coal, is also experiencing a severe downturn.

Media reports said that steel prices have dropped to a five-year low and are not likely to rebound anytime soon.

Besides weak demand, domestic coal producers are also facing competition from cheaper imported coal. Guan noted the price of imported -coking coal could be 20 to 30 yuan a ton lower than domestic coking coal.

China imported 327 million tons of coal in 2013, accounting for more than 9 percent of the country's total coal consumption, China National Coal Association said in January, and imports will remain at about 300 million tons in 2014.

Total coal production is expected to grow to 3.8 billion tons in 2014 from last year's 3.7 billion, the Xinhua News Agency reported Saturday, citing Lu Yaohua, association vice chairman.

Demand will also grow slightly in 2014, but the growth will be much lower than the growth in production, Guan noted. Profit margins of domestic coal producers will thin, experts said.

China Shenhua Energy Co, the country's largest coal miner by production volume, reported net profits of 33.67 billion yuan in the first three quarters of 2013, down 7.9 percent year-on-year.

To curb overcapacity, the State Administration of Coal Mine Safety ordered no new coal mines with annual production capacity of 300,000 tons will be allowed to open this year and those with a capacity of 90,000 tons will continue to be shut down, Song Yuanming, an official at the administration, said in January.

"The current coal producers are all large companies, but there is still room for them to improve their efficiency," said Li, noting that cutting cost is the only way to weather the current tough time in the sector.