China may only expand its coal capacity by one-third of its target this year because of safety and environmental regulations, according to a government-backed industrial association.
The nation can add about 100-million tons of capacity this year, including mines still being tested, Zhang Yupeng, an analyst at the China Coal Transportation and Distribution Association, said Wednesday on a webcast. The biggest user of the most polluting fossil fuel had aimed to add 300 -tons to its record-high capacity this year.
The group earlier this month warned that domestic production could have been stretched to its limits as the nation seeks to curb imports amid a surge in international prices, raising the specter of shortfalls during peak summer power demand. The key mining hubs of Shanxi, Inner Mongolia and Shaanxi have so far managed to keep up production although coronavirus-related restrictions have led to disruptions at transport hubs.
But new price limits for both miners and shippers under legally binding long-term contracts, far below spot rates, are set to officially take effect on May 1, potentially discouraging miners from expanding supply. That comes as CCTD expects demand to recover when lockdown measures are gradually eased toward the end of next month, leading to restocking pressure at power producers seeking to secure enough supply at the capped price.
Users may have to buy about half of their supply on the open market, according to Han Lei, another analyst at CCTD. Authorities in Shanxi, the nation’s biggest coal producing province, have set a maximum traded price 50% above the government’s price band.
There is little scope for imports to offset the shortfall, because prices from top foreign supplier Indonesia are above the resale price to domestic power plants. That gap is expected to remain for the rest of the year, further dragging down imports, Han said.