Chinese coal companies lobbied government officials, including Premier Li Keqiang, to set a price floor for coal to protect against bankruptcy and prevent job cuts, according to people familiar with the matter.
The proposal was made to Li during his trip to Shanxi province in January by state-owned coal firms and local officials, one of the people said, asking not be identified as the information isn’t public. Industry groups and mining companies also sought a floor from the government at a separate meeting in Beijing last month, another person said, adding that the cabinet may not agree as efforts are focused on cutting industrial overcapacity.
“The government probably won’t take any action on setting a price floor in the near future and instead focus on curbing the supply glut this year,” Deng Shun, an analyst with commodity researcher ICIS China, said by phone from Guangzhou. “Chinese coal prices have stopped falling with peak demand in winter.”
Premier Li said during his Shanxi trip that production should be cut and costs reduced to ease oversupply, while extra coal workers can be transferred to other industries. The central government is setting up a fund to provide 100 billion yuan ($15 billion) a year to help coal miners and steelmakers cut workers, the Economic Information Daily reported last month. Coal demand has slid as China’s economy slows and the government seeks to curb pollution.
Coal priced at Qinhuangdao port, China’s benchmark, averaged 375 yuan a metric ton as of Feb. 21, down about 25 percent from a year ago, according to data from the China Coal Transport and Distribution Association.
The world’s largest coal consumer aims to eliminate as much as 500 million tons of annual output in three to five years, the State Council said in a statement on Feb. 7. The country also plans to consolidate an additional 500 million tons a year of capacity among fewer miners and stop approving new projects over the next three years.