Coal machinery to see robust growth

China's coal machinery manufacturers are expected to continue their strong run till 2020, buoyed by a recovering coal mining sector, analysts said.

Wu Dongdong, an analyst with Hangzhou-based Zheshang Securities Co, said demand for coal machines increased as a majority of coal enterprises earned higher profits.

"As the effect of supply-side reform unfolded, coal prices started to rebound by the end of 2016, and coal companies' profitability improved significantly," Wu said. "Outdated machines in need of replacement are also driving demand in the coal machinery industry."

Coal equipment includes longwall machines, continuous miners, draglines and highwall miners.

Several major Chinese coal machinery makers and suppliers predicted robust growth in 2017.

Zhengzhou Coal Mining Machinery (Group) Co estimated that its net income would increase at least 329 percent year-on-year to 266 million yuan ($41.9 million) in 2017. The company attributed the growth partly to the recovery of the coal mining sector.

Linzhou Heavy Machinery Group Co said it turned a profit last year, with estimated net income of at least 30 million yuan.

Tiandi Science & Technology Co, according to research data, expects a total of more than 20 billion worth of new purchase orders in 2017, nearly double the amount of the previous year.

"The life cycle of coal machine lasts about five to eight years. The last investment boom in coal machinery industry came between 2011 and 2013. But in the following years, equipment replacement was delayed due to a recession in the coal mining industry," Wu said.

"As mining firms increasingly turned into profit in 2017, demand for coal machines is expected to peak in the next two to three years."

With a goal to reduce outdated coal capacity and increase the use of cleaner coal, coal machinery makers have been innovating their products.

For instance, Tiandi Science & Technology Co, a State-owned enterprise, developed an intelligent mining machine. Developed in-house, the machine can reduce labor cost and improve mining safety.

Coal machinery makers' expectations of rapid growth expansion came amid China's efforts to optimize the structure of its coal production.

The world's largest coal producer and consumer will cut outdated coal capacity by 800 million metric tons per year by 2020, while increasing use of cleaner coal by 500 million tons, according to the coal industry 2016-2020 development plan issued by the country's top economic planner and regulator.

There will be about 3,000 coal enterprises in 2020, mostly large companies, running about 6,000 collieries nationwide, with large-capacity coal mines the majority.

The plan also outlines targets to improve coal production safety and efficiency, as well as to reduce impact on the environment.

China is likely to achieve its goal of reducing coal capacity by 500 million metric tons well ahead of the planned three to five years target, said Jiang Zhimin, vice-president of the China National Coal Association.

By the end of 2017, the number of coal mines in China dropped to about 7,000 from 10,800 in 2015, Jiang said at a forum hosted by the China Metallurgical Industry Planning and Research Institute last month.

"China now has more than 1,200 coal mines with annual production capacity exceeding 1.2 million tons, accounting for more than 75 percent of the country's total coal capacity," Jiang said.