Companies, govts meet 2016 goals for reducing overcapacity

By Chen Qingqing Source:Global Times Published: 2016/12/22 17:33:39

Cutting back on coal, steel

In February 2016, the State Council laid out a plan to tackle one the country's major economic problems: overcapacity in the coal and steel industries. The plan called for cutting coal output by 500 million tons and crude steel output by 100 million tons to 150 million tons from 2016 to 2020. The cuts have weighed upon the country's coal and steel industries, but also upon the local economies where the industries were especially prominent. Although the 2016 goals have been met, the costs have yet to be fully determined.

The site of a coal mine in Tonghua, owned by Jilin Province's largest coal producer Jilin Provincial Coal Industry Group Co, on December 14 Photo: Chen Qingqing /GT

The site of a coal mine in Tonghua, owned by Jilin Province's largest coal producer Jilin Provincial Coal Industry Group Co, on December 14 Photo: Chen Qingqing /GT

After the central government unveiled guidelines for tackling the capacity glut in the coal and steel markets, provinces where those two sectors are pillar industries have been accelerating the process of cutting their production.

As part of China's supply-side structural reforms, the country's coal miners have already hit their annual target for slashing coal capacity by 250 million tons, Xu Shaoshi, head of the National Development and Reform Commission (NDRC), was quoted as saying in media reports on Sunday. Meanwhile, the country's steel makers have hit their target by reducing steel output by 45 million tons.

Each province also unveiled its report on the process it made in phasing out some local coal mines. For example, Northwest China's Shaanxi Province has already shut down 62 mines cutting 29.34 million tons of coal as of December 13, according to the Shaanxi Provincial Development and Reform Commission. Jilin aims to close 113 mines with a combined capacity of 24.95 million tons from 2016 to 2018, according to a document the Jilin Province Administration of Work Safety sent to the Global Times on Wednesday. Jilin has shut down 64 mines this year, cutting output by 16.37 million tons.

Another major coal-producing province, North China's Shanxi Province, has reached its target of closing 25 mines, cutting 23.25 million tons of capacity in October, the Shanxi Daily reported on December 18.

Cutting capacity

There are no more coal-laden trucks trundling down the rough road between the town of Hongmei, Northeast China's Jilin Province, and its once productive coal mine.

The town, about a two-hour drive from the province's capital of Changchun, was built on coal. Hongmei had not been developed until the mining companies came to the area in the 1970s hunting resources.

Liaoyuan Coal Mining Group, an affiliate of the province's largest coal producer, Jilin Provincial Coal Industry Group Co, built a hospital and a school in the center of Hongmei after constructing a mine that went on to produce 91 million tons of coal over its lifetime.

The mine, which is about to come to an end, is one of 14 that Jilin Provincial Coal Industry Group Co plans to shut down in 2016 as part of the government's war on overcapacity in China's coal and steel industries.

"After one of its pitheads was closed at the end of November, no one is in charge of cleaning the snow on this road to the mine now," a 38-year-old worker who preferred not to be named told the Global Times on Tuesday.

Liaoyuan Coal Mining will close the rest of its pitheads by the end of this year as it steps toward fulfilling its own goal for cutting capacity.

Major coal and steel producers, along with the provinces where coal mining has been a pillar industry, all came up with detailed plans to decrease production by 2016.

Major coal producers have been announcing their progress in slashing overcapacity in recent months. Shenhua Group, the country's top coal producer by output, announced that it has hit its 2016 target ahead of schedule, a PR staff from the company who preferred not to be name told the Global Times earlier December.

Datong Coal Mine Group has met its goal in October by closing three mines and cutting 3.75 million tons of capacity, according to a report from financial news portal in September.

In terms of tackling the capacity glut in the steel industry, North China's Hebei Province has met its 2016 goal by closing 57 furnaces with a combined output of 33.85 million tons, according to the Hebei Provincial Development and Reform Commission.

Local governments have been accelerating their plans in cutting steel output, which have already surpassed the overall target set by the central government, said Li Xinchuang, president of the China Metallurgical Industry Planning and Research Institute (CMIPRI).

"Particularly, local governments in Hebei and East China's Jiangsu Province have recently tightened production rules by cutting the number of medium-frequency furnaces, which also helped meet the target," Li told the Global Times on Sunday.

While reporting progress in slashing the overcapacity, coal and steel producers are still facing challenges in resettling their redundant employees, dealing with ballooning debt and restructuring.

Challenges ahead

Shutting down coal mines and steel furnaces is only the first step for some coal and steel producers, as they have more work ahead, which is also in line with the NDRC's guidelines for 2017.

Tighter rules for controlling capacity and a stricter crackdown on illegal production are expected for 2017, Xu was quoted as saying by the People's Daily on Sunday.

"For us, the next focus is how to channel these workers from the mines that closed in 2016," Liu Dantong, vice director of mining at Jilin Provincial Coal Industry Group, told the Global Times on Wednesday.

In 2016, Jilin had to resettle 30,044 employees, 64.8 percent of which have been transferred to new positions, according to the provincial government's documents.

The province was granted with 800 million yuan from the central government as a special fund for the resettlement, and a major measure is transferring some workers to other mines or factories, instead of letting them buy themselves out, which means getting amount of compensation from the mines they worked at and stopped their contracts with the mines.

"But many of us hope to buy ourselves out, which means we can get compensation based on our length of service, and then look for new jobs," said the coal miner in Hongmei town.

However, the group is not encouraging the buyout for two reasons. One concern is that some workers may use up their compensation without finding new jobs, which may rattle social stability, Liu noted. "Another is that the company is unable to provide a large amount of compensation due to its own financial status," he said.

The group has a debt-to-equity ratio of 79.2 percent, and it has reported an accumulated loss of 3.2 billion yuan since 2013, the documents showed.

The company will strive to tackle the debt issue in 2017, and it is studying detailed measures with local financial authorities to deal with bank loans of 6.72 billion yuan and nonperforming assets of 4.44 billion yuan.

Facing a capacity glut, one of Ansteel Group Co's priorities is to control costs while increasing profits, said a vice director of public relations at Angang Steel surnamed Zhou.

As of Thursday, the steelmaker has phased out 3.12 million tons of crude steel capacity.

Ansteel was ranked as the seventh most competitive steel producer in the country in 2016 by the CMIPRI in December. 

Although the steel industry has made progress in slashing overcapacity and in increasing profitability, 27 percent of the country's steel makers recorded losses in the first 10 months of 2016, Li said, noting that more efforts should be address to upgrade and diversify their products. 

"While continuing to cut output, companies are also expected to further strengthen their competitiveness in 2017," he said.



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