China’s coal and coke industry is beginning to enter a recession due to industry-wide price drops as a result of the global financial storm. Shanxi Province, China’s primary producer of coke and coal is the most affected by the price drops and is projecting close to a million lost jobs and compromised fiscal revenue.
In September, the price of second grade coke dropped from 3,000 yuan (US$500) per ton in the summer to 2,000 yuan ($350). Production values were also affected. According to China National Statistics Bureau national coke production levels in September were 25.67 million tons, a drop of 13.5 percent since August and 9.9 percent since last year.
According to several Hong Kong based media reports, the economy of Shanxi Province, which primarily revolves around the “black triangle” of coal, coke and iron has almost collapsed due to huge losses posted by enterprises and private coal mines which have nearly shut down. It’s speculated that the current recession will lead to a rough economy next year and may even affect the delivery of government employee wages.
Mr. Zhang, a private coal mine owner in Shanxi Province remarked that due to the global financial crisis, the demand for fuel has greatly decreased since the Beijing Olympics. Zhang also says that many small coal mines have gone out of business and that he doesn’t anticipate the price of coal and coke will rise until August 2009.
A U.S. based expert on China, Cao An, says that the sharp decline in price for coal and coke was directly impacted by China’s oversupplying steel industry.
“One third of China’s steel factories have been closed, and the remaining two thirds are only partially operating,” said An.
“The recess of the iron and steel industry brought about the recess of the coke industry and furthermore, that of the entire coal and coke industry in China.”
An also remarked that the collapse of China’s real estate markets has been the factor causing the massive decrease in demand for steel. He also says that in addition to the global price decrease for iron, China’s steel industry has suffered huge losses.
“The price of coal is dropping every day now. Last year, China signed an agreement with the Australian Iron and Steel Association for five years during the peak price period. Therefore, the price China is buying iron at now is about one third higher than the global price. The loss is huge and China’s overall economic situation is very bad,” said An.
