Thursday, April 3, 2014

Chinese coal firms creak under heavy debt and tumbling prices

Reuters reporetd that the Baofu highway, a road that serves the mines in China's coal producing hub of Ordos was largely empty on a recent visit. A few years ago, it was so clogged with trucks that the traffic jams were legendary, sometimes lasting several days.

To either side, rows of once busy restaurants are closed and flanked by advertisements for discounted coal. At mines that are still operating, unsold coal is piled high and lacking its black sheen, having been exposed to the elements for months.

China's top producing coal province of Inner Mongolia, where Ordos is located, is in crisis. Tumbling prices, caused by weaker demand due to slowing growth in China and a flood of cheaper imports, have forced many smaller miners out of business, while some major firms are slashing wages by up to 50% to stem heavy losses.

Industry experts said that Chinese coal prices are at 6 year lows, and miners in Inner Mongolia and elsewhere are grappling with overcapacity, sluggish demand and shrinking bank credit.

The troubles faced by small miners in the region are likely to be replicated across China's coal industry, posing a risk for China's financial health if there is a wave of bankruptcies.

Mr Weng Qing An CFO at China Coal Energy said that “The outlook for miners across China was grim. If coal prices continue to slide, it will be hard for many companies to survive. The whole industry will undergo a major consolidation."

Source - Reuters

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