Coal output to be hiked, says NDRC

Economic regulator frees part of mothballed capacity to rein in excessive price increases

China's top economic regulator－the National Development and Reform Commission－gave the greenlight to bring back onstream some frozen coal production capacity in order to head off coal prices rising excessively, it announced on Wednesday.

The capacity involved was previously taken offline in order to tackle inefficiencies and unprofitability related to overcapacity in the sector.

But the commission, at a briefing in Beijing, said it was releasing the mothballed capacity in a bid to temper coal prices, which have been increasing sharply of late due to a short supply.

Coal prices have been rising rapidly since February. The Bohai-Rim Steam-Coal Price Index has reached 554 yuan ($83) per metric ton, increasing 49.3 percent from 371 yuan per ton at the start of the year.

In early September, the NDRC issued a contingency plan for putting a cap on fast-rising coal prices, allowing daily coal output to increase by 300,000 tons.

The commission said on Wednesday that it has made new plans to increase daily coal output by 500,000 tons.

"If coal prices keep going up fast, we will unleash more capacity to ensure a stable coal supply," the statement said.

According to a report in Beijing Business Today, Shenhua Group Corp has obtained permission to increase its output by a maximum of 2.79 million tons this year at its 14 coal mines.

The NDRC said, however, that overall it was sticking to its policy of shedding overcapacity in the sector.

Analysts said the commission would balance the need for restructuring with rising demand as the country heads into the colder winter months.

Deng Shun, a coal analyst at ICIS, a commodities information service provider, said in the next few months the NDRC's emphasis would be on guaranteeing coal supplies but it would not take its eyes off the longer-term need and its efforts to downsize capacity.

"Coal-consuming companies have been actively lowering their inventories. Yet as coal prices rise, they want to stock up on coal, only to find that the supply is very short," Deng said.

Analyst Xu Xiangchun, at iron and steel consultancy website mysteel, said coal supplies to steel smelters were currently quite tight.

Wang Yanfei contributed to this story.