Chinese coal miners are so determined to cash in on a window of high prices that many are slashing holiday leave for workers and raising pay through the Lunar New Year celebrations before government introduces limits on output again.
Prices in China, the world’s biggest coal user, have slipped back 16 percent from their two-year peak of 610 yuan ($88.83) per tonne two months ago, but they are still profitably high after a couple of barren years for miners.
“At current price levels, we would love to have 73 hours in a day, so that we can produce as much as possible,” a private coal mine owner based in Wuhai, Inner Mongolia, told Reuters.
That urgency reflects a broad expectation among analysts and mining executives that Beijing will order them to reduce output after the festivities, once winter heating demand has peaked.
In April 2016, with many miners failing to turn a profit, government ordered mines to limit the number of days they operate each year to 276 days from 330 as part of its effort to cut inefficient surplus capacity.
By November, however, it was forced to ditch that policy to avert a winter energy crisis after a double-digit percentage drop in output triggered a sharp rally in prices.
Now miners are determined not to be caught on the hop, and are racing to get their coal to market, aware that Beijing still aims to slash 500 million tonnes of output by 2020, just over 16 percent of current levels.
Major producers including Shanxi Kaijia Energy Group, ChinaCoal and Shandong Yulong Group in Shandong, Hebei, Shanxi and Shaanxi, are allowing workers an average of seven days’ leave for the festival this year, according to China Sublime Information Group, which surveyed 30 companies.
That is well down on the last two years, when prices were below break-even for many miners, who in response typically gave workers a generous 45-60 days off for the occasion, mining executives and analysts said.
“In 2015 and 2016, most of the coal mines we visited were shut down starting Jan. 1. This year, they are postponing the holiday to as late as January 27,” said Zhang Min, coal analyst at Sublime.
GLOBAL IMPACT
Reuters spoke to five coal mines in Inner Mongolia, China’s largest producing region, and they, too, said they had cut leave to around 10-20 days for the festivities, which officially begin on Jan. 27 and last for a week, down from about 30 days in 2016.
Two of them said they were raising wages by 30 and 50 percent through the period, too.
The consequences for such price fluctuations are felt globally, as the fundamentals of China’s coal market determine world prices. Last year international miners boosted shipments to China by a quarter as Beijing’s output restraints drained supply.
“Price fluctuations in the domestic Chinese market as policymakers adjust output and prices to their desired levels will likely be a key driver of the international markets over the months ahead,” said Adrian Lunt, commodities research head at Singapore Exchange, in a note.
But this year, though analysts and mining executives expect government to announce restraints again before March, they think policymakers will take a more flexible approach, chastened by the wild price lurches in 2016.
Lunt said Beijing may be prepared to tweak the limits if prices breach certain thresholds around 535 yuan per tonne, which was the basis price for annual supply contracts that miners signed with utilities.
In the meantime, workers in the industry are in two minds about their employers’ big push.
“I cannot make the reunion with my family until the Lunar New Year eve. That’s unusually late for me,” said Li Zhuang, a coal worker in Inner Mongolia, who will travel about 1,000 kilometers (625 miles) back to his family home in Shandong province.
“The good thing is each of us get around 6,000-9,000 yuan in extra bonus this year,” he added.
http://www.reuters.com/article/us-china-economy-coal-idUSKBN1540SC