By the end of January, china’s stock recorded considerable gains, with coal producers advancing. The Shanghai Composite Index gained about 0.8%, following reports that the government was looking to honor its pledge of cutting overcapacity as well as excess labor in both coal mining and steel industries.
China aims at closing over 1,000 coal mines throughout the year, reducing the total production to 60% million tones. This comes as a plan to tackle the price-sapping supply gut, according to the energy regulator in the country.
China is the top coal consumer in the world, but the demand has been decreasing as the economy growth slows. The country is also gradually shifting away from the use of fossils in the aim of cutting pollution.
In a report released on Monday on the NEA’s (National Energy Administration) website, the energy regulator said that the closure is fulfillment of a pledge earlier this year to shot about 500 million tones within the coming three to five years. Currently, the country has 10,760 mines, with 5,600 being shortlisted for closure. The policy looks to ban those with an output capacity less than 90,000 tons annually, according to an estimate by China National Coal Association.
Moreover, China has pledged to stop the approval of new coal mine projects, a policy to run for the next three years. This, it says, is to control capacity. Apart from coal, the country is also looking at tackling overcapacity in other sectors such as thermal power by reducing new bids as well as cancellation of projects.
This measure will likely have a big impact on the commodity stocks in China. It is expected that the closure of the 1,000 companies will help the industries to regain balance when it comes to demand and supply. According to analyst, once this is done, the coal commodity stocks will gain further, trickling down to the country’s commodity market.
The move to control the coal mining sector in China is a great move by the government. Coal companies have been reported to have overcapacity, producing large amounts of coal, yet the country looks at decreasing the demand. This will see the commodity market in the country take an interesting twist, especially in the mining sector.