The mine was in a state of urgency during an internal meeting at the beginning of this month. Buchangsen reflected on the extremely tough period the coal industry faced in 1998 and 1999, when the entire mine struggled with unpaid wages and could not even afford to eat. He urged all mines under Shandong Energy to strengthen their sense of crisis and prepare for potential future challenges.
According to Wind data, thermal coal prices in the Bohai Rim have been declining since late 2011. On May 15 this year, the latest offer for Bohai Thermal Coal reached 612 yuan per ton, a year-on-year drop of 22.14%. As of the first quarter of this year, the accumulated accounts receivable in the coal industry totaled 230.22 billion yuan, up 16.77% year-on-year, while the debt-to-asset ratio hit 60.67%, the highest since 2010.
Gaozhuang Coal Industry Co., Ltd., a key mine under the Zaoqi Group, made a profit of 1.2 billion yuan last year. Sun Guoguang, manager of Gaozhuang Coal Company, told the Economic Herald that this year’s profit target has increased by 70 million yuan, but coal prices have continued to fall. Over the past two years, downstream industries such as steel, power, and cement have been sluggish, leading many major clients to refuse coal, delay payments, or even lower prices. Some smaller customers have started colluding to drive down prices further.
Niu Kehong, deputy secretary-general of the Shandong Coal Industry Association, told reporters that the capital chain and cash flow are crucial indicators for coal companies. The rise in accounts receivables and inventory is due to some companies still holding onto outdated “golden age†thinking, hoping for market recovery. However, with the market remaining weak, this will inevitably increase financial risks for these companies.
As mining operations go deeper in Shandong, costs and safety risks also rise. According to statistics, Shandong has drilled 24 pairs of deep wells over one kilometer, making up 57% of the national total. Yuzhen Coal Mine, which started operations in 1993, is a critical support mine for the New Ore Group to maintain production of 10 million tons. It has operated at high intensity and completed 30 years of mining in less than 20 years, despite not being old.
He Xilin, head of the Yucheng Town coal mine, said that by the end of 2011, the mine had 5,216 production systems, 3,602 non-coal, logistics, and property systems, and produced 1.6 million tons of coal that year. At the time, the market was strong, and the mines were profitable. However, good profits masked issues like inefficient layouts, low personnel efficiency, and high labor costs. Last year, the coal market turned sharply, exposing hidden problems within the company. Now, the challenge is to make mining safer, more efficient, and cost-effective, while improving working conditions and quality of life for workers.
Wu Changsen believes the coal market will not improve in the long term, and prices may continue to decline over the next 3–5 years. Niu Kehong echoed this, stating that the industry is following an "L-shaped" trend, and there should be no unrealistic expectations for a full recovery. The industry can no longer return to its previous high-growth phase.
During the "Eleventh Five-Year Plan" period, private and state-owned capital from real estate, electricity, and automotive sectors rushed into the coal industry, leading to irrational development. This overexpansion has now resulted in a correction, marking a shift from excessive growth to more sustainable practices.
Data from the China Coal Industry Association shows that during the "11th Five-Year Plan," the coal industry invested 1.25 trillion yuan, with additional investments of 470 billion yuan in 2011 and 478.82 billion yuan in 2012, totaling 2.2 trillion yuan. Based on a production capacity of 800 yuan per ton, this investment could support a total production capacity of 2.75 billion tons. However, the current overcapacity problem remains significant.
Niu Kehong, an early observer of the industry's turning point, noticed signs of change in October 2011. By the start of last year, he published several articles explaining the industry's shift and impending crisis. In his view, today’s situation is the result of various market forces converging. The slowdown in the global economy, along with changes in domestic investment patterns and the end of large-scale investment-driven growth, have all contributed.
For the coal industry, the root causes include excess capacity, weak demand from downstream industries, and the international coal price inversion, which has led to increased imports displacing domestic coal. Additionally, China’s energy structure is evolving, with a growing emphasis on clean energy and carbon reduction.
Last year, China imported 290 million tons of coal, and 110 million tons were imported in the first four months of this year. Niu Kehong suggests that properly importing coal and increasing resource reserves is not necessarily bad, but it’s important to set higher import standards and prohibit the import of low-value, high-polluting coal.
Buchangsen emphasized that adapting to the current environment, upgrading the company, and thriving in the new economic climate will lay the foundation for future success. Niu Kehong advised Shandong coal companies to adjust product, industry, talent, and market structures quickly, shifting from extensive to lean development and adapting to market changes. He recommended that high-carbon industries move toward low-carbon development, invest in clean fuels like coal gas, and seize opportunities in emerging industries. During market downturns, it’s also a chance for low-cost expansion, and companies with strong financial, technological, and management capabilities can accelerate integration through mergers and acquisitions.
In 2013, Shandong Energy Group focused on the “green coal strategy,†transforming black coal into green energy and making significant contributions to green mining, processing, and usage. Bo Changsen proposed concentrating on core coal resources, building large, efficient mines, reducing costs, and promoting “light asset management.â€
Gaozhuang Coal has tapped into internal potential and value-added benefits. Despite a 200 million yuan income reduction, the mine achieved 360 million yuan in profits in the first four months of this year, exceeding targets by 88 million yuan. Costs per ton of coal—material, electricity, and management—decreased by 7% to 2%, and employee ergonomics improved by 13% compared to the same period last year.
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