China’s top economic planner held an “urgent” meeting with coal producers on Friday in response to steel industry pleas to increase output of the fuel, according to an industry source and state media reports.
While there was no official outcome from the talks, Reuters reported the National Development and Reform Commission rejected the request to ramp up output of coking coal but approved higher thermal coal production for 74 major miners.
The meeting came after a similar gathering two weeks ago at which the authorities decided to relax production curbs on some coal mines.
Analysts said the meeting highlighted Beijing’s challenges in balancing vested interests in the coal and steel industries as it tried to roll out supply-side reforms.
Mainland producers cut coal output by 10 per cent in the first eight months compared to the same time last year as part of a broader push to phase out excess capacity. But that led to a sharp rise in coal prices and complaints from steelmakers, the major consumer of coal on the mainland.
The China Iron and Steel Association, an industry grouping of the country’s biggest steel plants, appealed to the NDRC for help.
The commission convened the urgent meeting, inviting the nation’s steel and coal companies as well as local government officials from key coal and steel producing areas to talk about how to ensure cheap coal supplies to steel mills, the official China Securities Journal reported.
A steel association official confirmed the meeting took place on Friday morning.
Zeng Jiesheng, deputy general manager of Mengjiagang Changjiang E-Commerce, which tracks commodities markets, said the meeting reflected the resistance to Beijing’s drive to phase out excess capacity in the steel sector, and showed that Beijing still had to compromise when the pressure grew.
“The government shouldn’t entertain steel mills’ requests. They should let market forces play the decisive role,” Zeng said.
The central government aims to cut 250 million tonnes of coal production capacity this year, but it met just 38 per cent of the annual target in the first seven months, according to the most recent NDRC data.
Qiu Yuecheng, senior analyst at Xiben New Line, a firm that tracks the commodities market, said capacity reduction in the coal industry was having a big impact on prices and supply.
“Meanwhile, steel mills are crying for more coal to boost production as they see good prospects for profit,” Qiu said.
The mainland’s thermal coal benchmark has risen by almost half this year, while coking coal prices have more than doubled.
The economy showed signs of recovery last month, with strong imports and greater industrial output offering breathing room for struggling steel and coal firms
According to the National Bureau of Statistics, mainland coal production dropped 11 per cent year on year to 278 million tonnes in August. In the first eight months, coal production dropped 10.2 per cent to 2.18 billion tonnes. At the same time, mainland steel output rose 4 per cent to 97.91 million tonnes in August and increased 2.2 per cent to 755 million tonnes in the first eight months.