Coal Producers Post Third Year of Profit Growth

China’s coal producers notched a third consecutive year of profit gains in 2018, though growth rates slowed considerably as positive effects started to slow from an ongoing national campaign to reduce excess capacity.

Over the past five years, the government has launched a number of similar campaigns in industries including coal, steel and aluminum to rationalize output and eliminate less-efficient smaller operations that thrived during the country’s rapid three-decade economic rise. The capacity-slimming has begun paying off even as regional governments worry over the loss of smaller outfits that were important to local economies.

Within the coal sector, profits for large-scale producers rose 5.2% last year to 288.8 billion yuan ($43 billion), the China National Coal Association said Friday at its annual media briefing. Profits for 90 of the largest producers – accounting for more than half of all profits – rose an even more robust 26.7%, reflecting the government’s drive to concentrate more output at the largest, most efficient operations.

While profits continued to grow, the latest increases marked a sharp slowdown from the last three years. Profits more than tripled in 2016 as early effects of the campaign began to kick in after a period of contraction between 2013 and 2015. Profits nearly quadrupled in 2017.

The capacity-reduction campaign kicked off in 2016 under orders from the State Council, China’s cabinet, aimed at reducing annual capacity by 500 million tons over the next three to five years. Reductions under China’s current five-year plan, which runs through 2020, are basically done, said Jiang Zhimin, the association’s deputy chairman.

Mining operations with 300,000 tons of annual capacity or less have eliminated 220 million tons of annual capacity, he said. The next step will involve removing systemic structural hurdles to the industry’s efficiency, he added.

China currently produces most of the coal it uses, though it also imports some. The nation is trying to lower its dependence on the dirty-burning fossil fuel, which is mostly used to generate power, in a broader campaign to clean up the nation’s air. China has embarked on a huge buildup of cleaner energy sources over the past five years, including renewables like wind and solar, as well as cleaner-burning natural gas and nuclear.

Last year China’s total domestic coal output reached 3.68 billion tons, up 4.5% from 2017, while imports rose 3.9% to 281 million tons. The nation’s total coal consumption rose by just 1% last year to 3.9 billion tons.

Contact reporter Yang Ge (geyang@caixin.com)