trending Market Intelligence /marketintelligence/en/news-insights/trending/zEfapCjAUt57mtpNVrwcfg2 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

China's coal production quotas in short supply, says analyst

Q2: U.S. Solar and Wind Power by the Numbers

Essential Metals & Mining Insights - August 2020

Essential Energy Insights - September, 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August

China's coal production quotas in short supply, says analyst

A recent sale of a 3 million-tonne coal production quota by Inner Mongolia Yitai Coal Co. Ltd. to its state-owned parent company for 240 million Chinese yuan has shone a spotlight on the often overlooked market for coal production quota in China, where mining companies buy and sell rights to produce the tightly controlled commodity.

It is a market with demand estimated at about 1.3 billion tonnes but with only between 300 million and 500 million tonnes of new supply, said Zhao Dongchen, a coal analyst with ICBC International Research Ltd.

As part of its efforts to resolve overcapacity, China in February 2016 began to require all domestic coal producers that were planning to construct new mines or proceed with new production at existing projects to purchase production quota before going ahead with development.

Prior to this, the total annual capacity of coal projects under construction in China was estimated at about 1.5 billion tonnes, Zhao said, citing data from the China National Coal Association.

Based on this figure, Zhao said in an interview with S&P Global Market Intelligence that a rough estimate of the demand for coal production quota would be about 1.3 billion tonnes. He added that the difference between how much quota was required and production capacity varies based on individual project conditions as well as location.

For example, if a coal project acquired quota from another province, its new capacity will be up to 150% of the acquired amount. Coal miners seeking to add coal production capacity must secure quota equivalent to up to 120% of what they plan to produce, according to separate statements issued by the Chinese government since 2016.

However, on the supply side, only between 300 million and 500 million tonnes of coal production quota are expected to come into the market in the form of coal mines that have been ordered by regulators to close, Zhao said.

Zhao said other coal projects have also volunteered to exit the market and sell its quota but it was difficult to determine the exact quota volume added to the market as a result.

So far there has been scant public information on individual market transactions, with only two listed coal miners having made related disclosures — Inner Mongolia Yitai and Yangquan Coal Co. Ltd., which said in July that it was seeking to acquire production quota of about 9.4 million tonnes, of which 5.6 million tonnes will come from its state-owned parent, Yangquan Coal (Group) Co. Ltd.

"The majority of quota transactions happened between units owned by the same group, and few of them become public announcements," Zhao said. "In addition, the local governments have been very active in arranging nonpublic deals for local producers."

Such deals have added uncertainty to prices, and authorities are seeking to improve transparency by encouraging more open bidding, Zhao said.

While many provincial governments have reportedly been preparing a more transparent market, Hebei province is so far the only province with such a system.

Nine coal producers from outside of Hebei secured quota of 9.3 million tonnes through online bidding organized by the province, with prices averaging 181 yuan per tonne. This compares to a price of 80 yuan per tonne posted in the sale by Inner Mongolia Yitai to its parent group.

"It makes sense that the price from open bidding would be higher than nonpublic deals," Zhao said, noting that the nine companies were paying a premium, as they would be able to use the capacity on a 130% or 150% basis.

A Shanghai-based coal analyst, who declined to be named, told S&P that open bidding was expected to become more common, as it would reduce unnecessary intervention from either the government or other coal producers.

"Currently we only see very few deals in the market, so the prices do not represent the actual supply-demand dynamic," the analyst said, noting that prices in arranged deals were usually much higher or lower than those in public deals. The analyst expected the price to go up from the current levels, with more participants joining the bidding process.

While Chinese coal producers are expected to set aside funds for quota acquisition, it is not expected to increase the cost curve for the industry in general, Zhao said.

Zhao said a more transparent market for coal production quota will force high-cost, inefficient producers to exit and sell their quota, while miners with lower costs will be able to bear the additional costs and increase output.

As of Aug. 8, US$1 was equivalent to 6.70 Chinese yuan.