Sxcoal Issue 36# | China's coal industry losses widen amid rising costs and falling prices
In 2023, the average all-in cost of raw coal in China was 331 yuan/t, down 4.56% year on year...
Nearly half of China's major coal enterprises were operating at a loss by the end of September, according to data from the National Bureau of Statistics.
Specifically, 2,367 out of 5,135 companies reported negative earnings, resulting in a loss rate of 46.1%, an increase of 2 percentage points from the previous year.
The widening losses in the coal sector are primarily attributed to declining coal prices, which have severely impacted revenues, and rising production costs that are elevating operational expenses.
Increased investments in safety measures due to heightened regulatory scrutiny are adding strain to coal companies. Moreover, the push for modernization and compliance with environmental regulations has further escalated costs associated with labor, coal washing, and transportation.
Despite these challenges, China's coal production reached record highs in 2023, bolstered by government policies aimed at boosting supply. High supply helped bring coal prices at northern ports to below 1,000 yuan/t.
Entering 2024, stricter safety inspections in Shanxi significantly impacted local production. However, sustained capacity releases in Inner Mongolia and Xinjiang have helped offset coal supply, preventing further spikes in coal prices.
Looking toward the future, the Chinese coal industry is expected to witness a slowdown in demand growth as the country moves to peak carbon emissions. As production capacity increases, coal supply in China is poised to be loose in the coming years. This anticipated shift presents additional challenges for the cost structures of coal companies, highlighting the growing need for insight into coal cost dynamics.
In 2023, the average all-in cost of raw coal in China was 331 yuan/t, down 4.56% year on year, according to the latest research report on China's coal industry cost compiled by industry consultant Fenwei Digital Information Technology. This marks the first decline in costs in recent years if excluding the year 2020 when the COVID pandemic significantly impacted business operations.
With increased mining depth over 2024-2026, there will be more demand for materials and energy, as well as rising wages and carbon costs in a transitioning economy, the report pointed out.
As coal prices continue to decline, resource taxes based on these prices may also drop, potentially providing some relief for the average all-in costs across the industry.
Meanwhile, rail freight rates are anticipated to remain stable through 2026, while road transport expenses, including fuel, tolls, maintenance and labor, are expected to rise in line with domestic inflation rates. So, the FOB costs of commercial coal may go up moderately by 2026.
As various factors influence materials, labor, and energy costs, the trends for 2024 to 2026 appear mixed compared to 2023. Moreover, resource taxes may align with the downward trend in coal prices.
Fenwei analysts have examined major factors influencing future cost changes, and made forecasts over 2024-2026. The report offers vital insights across different coal types and regions, providing industry stakeholders with in-depth analysis to better understand future dynamics and their impact on production costs and market prices.
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