China’s Top Coal Firms Lean Into Power as Mining Profits Slip

(Bloomberg) -- China’s top coal producers are accelerating a move into power generation as fuel prices drop and electrification takes center stage in China’s low-carbon transition. 

Profits this year at miners such as China Shenhua Energy Co., the country’s biggest producer, and China Coal Energy Co., have come under pressure as the market has weakened. Nationwide mining expansions of recent years have left a glut of coal, and benchmark prices have fallen nearly 8% this year while mining profits across the industry have slumped 22%.

Shenhua cut coal production in the third quarter after promising earlier this year to shift investments away from mining. The firm added 305 megawatts of new generation capacity through September, the majority as solar panels. 

Mining costs are rising because of aging deposits that demand deeper bores and increased maintenance to avoid accidents, Song Jinggang, Shenhua’s chief financial officer, said at a briefing on Friday. The firm is also taking the last “window of opportunity” to open new mines and thermal power plants by 2025, said Chairman Lv Zhiren, before political pressure kicks in to peak the nation’s coal consumption to meet President Xi Jinping’s climate targets. 

Shenhua said earlier this year it would halve the budget at its coal unit, and cut its annual output target for this year. Although its state-owned parent firm, China Energy Investment Corp., is the country’s biggest thermal power plant operator, it has diversified its portfolio in recent years to overshoot its 2025 renewables targets and become the world’s largest operator of wind and solar plants, according to BloombergNEF.  

State-owned China Coal Energy, the country’s fourth-largest miner, has also accelerated acquisitions and new construction of thermal power plants to hedge risks from its core mining business. The firm rose to become the nation’s sixth-biggest investor in thermal power last year, based on data compiled by industrial news outlet BJX.com.

Although more profitable than mining, the power sector is facing its own challenges. More competitive regional markets are embracing cheaper renewables, pushing down rates paid to generators. In the southern manufacturing hub of Guangdong, which is spearheading market liberalization reforms, nearly half of power suppliers could barely break even after rates fell below output costs, according to local press reports.

On the Wire

Chinese lawmakers are gathering in the shadow of the US election to sign off on a fiscal package that’s set to run into the trillions of yuan yet is unlikely to put the market fully at ease.

Morgan Stanley is turning more positive on China’s solar manufacturing value chain, citing improving visibility on pricing recovery and industry consolidation. The price war among manufacturers of solar panels could be about to end, according to Bloomberg Intelligence.

The world’s biggest aluminum makers are once again clambering to secure the raw materials needed to make one of the most important metals.

The Week’s Diary

(All times Beijing unless noted.)

Monday, Nov. 4:

• The National People’s Congress Standing Committee meets through Nov. 8

Tuesday, Nov. 5:

• Caixin’s China services & composite PMIs, 09:45
• China International Import Expo in Shanghai, day 1
• China International Lead & Zinc Week in Changsha, Hunan, day 1

Wednesday, Nov. 6:

• CCTD’s weekly online briefing on Chinese coal, 15:00
• Asia Tin Week in Shanghai, day 1
• China International Import Expo in Shanghai, day 2
• China International Lead & Zinc Week in Changsha, Hunan, day 2

Thursday, Nov. 7:

• China’s 1st batch of Oct. trade data, including steel, iron ore & copper imports; steel, aluminum & rare earth exports; oil, gas & coal imports; oil products imports & exports; soybean, edible oil, rubber and meat & offal imports ~11:00
• China’s foreign reserves for October, including gold
• Sustainable mining conference in Shanghai
• Asia Tin Week in Shanghai, day 2
• China International Import Expo in Shanghai, day 3
• China International Lead & Zinc Week in Changsha, Hunan, day 3

Friday, Nov. 8:

• China’s weekly iron ore port stockpiles
• Shanghai exchange weekly commodities inventory, ~15:00
• China’s monthly CASDE crop supply-demand report
• Asia Tin Week in Shanghai, day 3
• China International Import Expo in Shanghai, day 4

Saturday, Nov. 9

• China’s inflation data for October, 09:30
• China to release Oct. aggregate finance & money supply by Nov. 15
• China International Import Expo in Shanghai, day 5

Sunday, Nov. 10

• China International Import Expo in Shanghai, last day

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