The coal hub of North China’s Shanxi province is striving to restructure its economic growth model amid declining coal prices and increasing ecological costs, senior officials said. “The past year was the most difficult year for us. Pressure from the price decline was as bad as in financial crisis-hit 2009,” provincial Party Secretary Yuan Chunqing said. Shanxi is China’s energy base, with coal reserves and output both accounting for one-fourth of the nation’s total. Coal output in 2013 reached 960 million tons, of which more than 64%, or 620 million tons, was transported and consumed outside the province. Shanxi also was China’s second-largest power supplier. Yuan noted that coal and coal-related industries, such as coke and smelting, accounted for about 80% of the province’s industrial added value. Coal price declines since mid-2011 reduced Shanxi’s revenue by CNY200 billion. “The golden decade of the coal industry is gone and probably will not come back,” said Zhu Xiaoming, Director of the province’s State-owned Assets Supervision and Administration Commission (SASAC). “The only way out is restructuring and modernizing the coal industry,” he added. “Coal remains the fundamental industry for the province in terms of China’s energy portfolio,” Vice Premier Ma Kai said. “But the solution is not to expand mining capacity, which will further drive down coal prices, but in extending the industrial chains, such as coal-electricity integration and coal coking business, as well as enhancing efficiency through promoting clean technology.” Liu Jianzhong, Chairman of the Shanxi Coal Transportation and Sales Group Co, said that the restructuring of the coal industry means greater business opportunities in coal-electricity integration as well as the utilization of waste, such as fly ash, a residue of coal combustion.

Mongolian Mining, Mongolia’s largest miner of coking coal sold primarily to China, expects the steel smelting ingredient’s price to remain weak this year due to oversupply, although it has gained market share from rivals by expanding processing and logistics operations. “I don’t expect prices to fall below current levels, but I don’t see meaningful price gain either, until demand and supply equilibrium is restored,” Chief Executive Battsengel Gotov told a press conference. Mongolian Mining’s average selling price of its mainstay product, hard coking coal, fell 15% last year to USD92.10 a ton from USD108.40 in 2012, owing to an estimated excess supply of over 30 million tons. The excess is expected to fall to between 10 million and 15 million tons this year, helped partly by higher steel output in Europe and the United States, Gotov said. Mongolian Mining posted a net loss of USD58.1 million for last year, from USD2.5 million in 2012 as finance costs almost doubled to USD95.1 million. Revenue fell 7.8% to USD437.3 million as the 15% fall in the average selling price offset a 26% jump in the hard coking coal sales volume to 4.3 million tons. The firm aims to sell six million tons this year. Although China’s coking coal imports jumped 41% last year to 75.4 million tons as low-cost imports replaced domestic products, Mongolia’s share of the Chinese market fell to 20.4% from 35.7% while that of Australia surged to 40% from 26.2%. Land-locked Mongolia’s competitiveness is expected to be constrained until a government-built railway is completed next year or later.

The recent slump in iron ore prices was “normal” and marked a return to its intrinsic value after years of inflation, said He Wenbo, General Manager of Baosteel. Iron ore prices fell the most in more than four years in early March to USD104.70 a ton, the lowest level since October 2012 and down from a recent peak of USD142.80. Analysts said the recent slump of iron ore prices was not mainly due to weak demand from China, the world’s biggest iron ore consumer, but instead had been caused by the unwinding of trade financing deals using iron ore as collateral, which dragged prices into a bear market. He Wenbo said the falling price might help boost profitability at Baosteel, which made CNY10.2 billion last year. The Shanghai-based company relies on iron ore imports from Australia and Brazil. The firm planned to keep steel production unchanged at 47 million tons this year, He said, adding that it had no plans for mergers or acquisitions until after 2015. A new, world-class plant in Zhanjiang, Guangdong province, with nine million tons of annual capacity, would begin production in 2016, he said. Baosteel had also been cutting six million tons of steel production capacity located in Shanghai to cut environmental costs and better suit urban development needs. He cautioned against drastically cutting so-called excess capacity, saying China’s demand for steel was tipped to rise for some years. “The demand for steel may continue to rise until 2018 or 2020, and then may stay at the peak level for several years before falling,” he said.

Energy officials in Shanxi province are considering creating a coal chemical base to turn the fossil fuel into clean energy. “As air quality keeps deteriorating in most regions of China, Shanxi must advance the establishment of the coal chemical modernization base in the province’s northern area. The move will increase the province’s supply of coal-transformed gas and oil to the rest of the country rather than just coal or coal-generated power. Meanwhile, the base will make full use of lean coal, which used to be waste. All in all, the move will play a very significant part in easing air pollution through providing clean energy to North China,” Zhu Xiaoming, Director of Shanxi’s State-owned Assets Supervision and Administration Commission, said. The coal-rich province has long been a major energy supplier to neighboring regions including Beijing, Tianjin and Hebei province. Coal output and reserves accounted for about a quarter of the country’s total. “We may not change China’s coal-dominated energy structure in the short term but we can make the energy cleaner and more efficient,” said Li Jinping, Chairman of the board of Lu’an Group in Shanxi province. Zhu added the base for coal chemical modernization in the province’s north will expand output from coal to gas, oil, hydrocarbons and other processed products. Conditions are said to be perfect for setting up the base. The province’s north has a coal reserve of 95 billion tons, making it a leading coal base in China. The reserve centers on lean coal, an ideal material for coal gasification. The output of lean coal can exceed 200 million tons per year by the end of 2015, officials say. Large areas of unoccupied land and massive water supplies, crucial to coal processing, are also available. Once established, each year the base will produce 30 billion cubic meters of coal gas, 6 million tons of coal-liquefied oil, 1.2 million tons of coal-converted olefin and 1 million tons of coal-converted ethylene glycol. The base will be established once it is approved by the central government.

China plans to establish a large mining conglomerate focusing on iron ore extraction and smelting operations led by Liaoning-based Ansteel Group, the China Metallurgical Mining Enterprise Association said in a statement. “Ansteel Group will acquire a number of mining enterprises to complete the integration work over the coming years and eventually possess an annual iron ore production capacity of 200 million metric tons in 2025,” said Shao Anlin, Deputy General Manager of Ansteel Group. In the meantime, up to eight large mining groups will also be integrated and established throughout China. Each individual group’s production capacity of iron ore will exceed 30 million metric tons a year after a decade. China is the world’s fourth-largest iron ore producer with more than 70 billion metric tons of resources, but the nation’s dependence on foreign iron ore rose to 70% last year. The country’s domestic steel industry has spent more than CNY2 trillion on paying high prices for iron ore from the global market over the past 10 years. To optimize the resources of domestic companies, the Ministry of Industry and Information Technology (MIIT) is working with related government departments and industry associations to draft a plan to restructure China’s iron ore sector between 2016 and 2025. China’s iron ore imports amounted to 820 million metric tons in 2013, up 10.2% from a year earlier, while China produced 1.4 billion metric tons of iron ore in the same year. “With profound changes in the world market, it is time for China to strengthen its competitive power to secure its iron ore supplies and stabilize its price in the world market,” said Zhao Zhihua, Analyst at the mineral resource department of CITIC Metal Co in Beijing.