China has approved nearly 50 million tonnes of new annual coal mining capacity this year even though the sector is struggling with a supply glut, a move that will effectively offset the planned closure of hundreds of smaller pits. According to approval documents, the National Energy Administration (NEA) gave the go-ahead to 12 mining projects in the first seven months of 2015 with a total annual production capacity of 48.6 million tonnes. The investment required is 33.5 billion yuan ($5.40 billion).
Smog-hit China has been trying to wean itself off coal, a major source of pollution, but it has also sought to protect the interests of an industry that employs around 6 million people and provides nearly two-thirds of total primary energy demand. The state is aiming to concentrate the bulk of production in large industrial bases in major producing regions such as Inner Mongolia, Ningxia and Shanxi, and it has stepped up its efforts to eliminate smaller producers elsewhere, especially along the polluted eastern coast.
"There will certainly be a larger number of small enterprises eliminated from the market or restructured or merged into larger ones, because the survival rate at the small firms is now pretty low," said Tang Jiabin, a coal industry analyst with Everbright Securities.
According to the China National Coal Association, the country has around 10,760 mines, but 5,600 of them will need to close under a policy banning those with annual capacity of less than 90,000 tonnes.
The small mines are estimated to have a total capacity of 500 million tonnes, but shutdowns will be gradual and local authorities are likely to replace lost production by expanding existing mining operations, the association said. Big firms such as the Shenhua Group have promised to cut production this year, while the biggest producing regions of Inner Mongolia and Shanxi are to cap their output at the current level of around 1 billion tonnes each for the next five years. Production in China fell 5.8 percent to 1.789 billion tonnes in the first half of this year, with industrial demand weak and more than 70 percent of mining firms losing money over the period.