★★★★I came across some good articles and would like to share them with everyone – ‘Future Coking Enterprises’’★★★★

Thread Content

The next two years will be a critical period for domestic coking enterprises, especially independent coking firms and those in Shanxi. Recently, the Shanxi Coke Industry Association raised the guiding prices for the coke industry for May. Industry experts believe that the rise in coke prices is driven by the recovery of downstream industries. Following the large-scale commencement of various construction projects in May, the increased demand for steel will help boost the coke industry. However, an anonymous senior executive at Shanxi Coking Group told a reporter from China Energy News that the rebound in coke prices was due to the life-or-death crisis faced by the coke industry at its bottom. Coking enterprises in Shanxi, as well as those across the country, remain in a difficult situation; if no help is extended to them in a timely manner, their prospects will be bleak. Coke prices turned upward after a series of declines. Following consecutive price cuts, the Shanxi Coke Industry Association (hereinafter referred to as “Shanxi Coke Assoc”) issued a statement on the last day of April, requesting that for the guiding prices in May, the coke prices of coking enterprises in Hebei, Shandong, and Inner Mongolia be increased by 30 yuan per ton compared to April’s levels, while the coke prices of coking enterprises in Shanxi and Shaanxi be raised by 60 yuan per ton on top of April’s prices. Just on the 5th day of May, the Hebei Coke Industry Association (hereinafter referred to as “Hebei Coke Assoc”) held a market analysis meeting, during which it was decided to raise the guiding price for coke by another 50 yuan per ton, building on the 30-yuan-per-ton increase implemented on May 1st. When discussing the factors affecting coke prices, a staff member from the Shanxi Coking Association replied helplessly to a reporter from China Energy News that high domestic coking coal prices prevent coke manufacturers from recovering their budgeted costs. According to the market guidance for the coke industry issued by Shanxi Coking Association in May, changes in the guiding price for coking coal are driven by market fluctuations. In April, inventories at coking plants and steel mills across the country declined sharply, and the coking industry continued to operate at a loss, with coking enterprises in Shanxi suffering particularly severe losses. The continuous decline in the guideline prices in March and April was a necessary measure taken to maintain the basic survival conditions of coking enterprises, given the severe difficulties faced by these companies in their operations, as well as the tough conditions in the upstream steel industry. Hebei Coking Association stated that this price increase is due to a rise of 50 yuan per ton in the prices of the raw materials used for coking, namely coking coal. The sales department of China Coal Xuyang Company expressed optimism regarding the trend in coke prices in May to a reporter from China Energy News, and confidently stated that the company’s coke prices could rise by another 20 yuan on top of their current level. Industry experts from the China Coking Industry Association (hereinafter referred to as “CCIA”) point out that it is not possible to make general comparisons of the coking industries in Hebei, Shandong, and Shanxi provinces, as there are significant differences in transportation facilities and local demand in these regions. The rise in coke prices in Hebei and Shandong is due to the improved processing capacity of local steel mills, whereas the situation in Shanxi is different. Tan Ke, a coal analyst at Dongxing Securities, also agrees with this view. Shanxi Province’s coke production and exports hold a pivotal position both in China and around the world, and it is often regarded as a barometer for the coke industry. However, due to the limited number of steel enterprises in Shanxi Province, the local capacity to consume coke is very weak, so about 80% of the total coke production in the province is exported. An anonymous senior executive at Shanxi Coking Group is deeply concerned about the coke prices in the Shanxi region. He told a reporter from China Energy News that the sharp decline in inventory levels at domestic steel mills gave Shanxi’s coking enterprises, which had long been struggling with losses, a glimmer of hope for a price increase. The coking industry is under severe pressure, so prices for coke have to rise. Regarding the market reaction to the price increase, a staff member from the sales department of China Coal Xuyang said that the steel mills in the Beijing-Tianjin-Tangshan region showed no signs of dissatisfaction or attempts to negotiate; they accepted the priced coke without issue, and their sales progress has been quite smooth. The reporter learned from Shougang that the price of coke from Shanxi imported by Shougang in the first week of May was slightly higher than at the end of April; the price of grade one coke was over 1,700 yuan, while that of grade two coke was around 1,500 yuan. Huaiyang Iron and Steel also stated that, compared to April, the price of some coke varieties has increased by 50 yuan per ton, with an average price of around 1,600 yuan. A staff member from the Shanxi Coking Association told reporters that the market price guidelines for coke they issue are not applicable to all coke manufacturers, but only to those companies affiliated with the association. However, the Shanxi Coking Association, known as the \"Coking Oil Arabia,\" has members from the five major coking-producing regions in China; the number of companies affiliated with it exceeded 200 already at the time the association was established in 2007. The coking industry is undergoing restructuring. Although, during interviews with the Coking Association, its officials repeatedly stated that there would be no widespread closures of coking enterprises, and that the current production restrictions are aimed at helping the industry survive. Yet this senior executive from Shanxi Coking Group remained silent for a time when the issue of corporate bankruptcy was raised. The senior official said that with the economy showing signs of recovery and downstream enterprises on the verge of a rebound, what pertains to the current situation and future of the coke industry is nothing but \"nice to hear.\" Since the outbreak of the financial crisis in the second half of last year, the price of coking coal in Shanxi has dropped sharply, falling from a peak of 3,000 yuan per ton to 1,250 yuan per ton. At the beginning of this year, coke prices increased by around 300 to 400 yuan per ton, but by early March, the prices that had managed to rise almost dropped back to their original levels. Meanwhile, the coking coal industry, which lies downstream of coke production, has remained largely unaffected by the difficulties faced by the coke industry – thanks to the strict production restrictions and price stabilization measures in Shanxi’s coal sector, as well as the extremely slow pace of restarts for small coal mines – and its prices have remained stronger than expected. To address the crisis, coke manufacturers collectively reduced production. In the three provinces of Shanxi, Shandong, and Hebei, enterprises have been reducing production by over 50% for two consecutive months. This means that almost half of our country’s coking capacity will be unable to be utilized. This time, coking enterprises in Hebei and Inner Mongolia regions will need to increase the scale of production cuts further on top of what they were already doing. “The coke industry is mired in trouble and facing an unprecedented crisis. \"Production restrictions are at such a level that if prices don’t rise a bit more, how can coke companies survive?\" continued the executive from the coking group to the reporter. \"The rise in coke prices is now happening in every possible opportunity; the direct reason for this is that coke companies are on the verge of collapse. This has nothing to do with an economic recovery or a revival of the industry.\" ” Tan Ke also pointed out that since the outbreak of the economic crisis, some very small coking enterprises have gone bankrupt. The coking industry is under pressure from both the strong upstream steel sector and the downstream coal sector, resulting in inverted prices and difficult operating conditions. “Coking companies suffered severe losses in the second half of last year. \"At the worst of times, the loss per ton of coke reached 1,000 yuan,\" said Zhang Bochun, secretary-general of the Hebei Coke Association, referring to the sharp rise in prices in the first half of last year followed by a plunge to rock bottom in the second half. Zhang Gangfeng, secretary-general of the Shanxi Coking Association, also said at the recent \"2009 Coking Industry Operations Information Release and Market Situation Analysis Meeting\" that Shanxi’s coking enterprises are currently losing 100 yuan per ton of coke. Both Tan Ke and senior officials at the coking group are convinced that this price increase is undoubtedly insufficient; coking companies will continue to operate at a loss. If this situation continues, an industry reshuffle is inevitable. Zhang Gangfeng emphasized that it should take no more than two months. A senior executive from Shanxi Coking Group sighed, saying that the next two years will be a critical period for domestic coking enterprises, especially independent coking firms and those in Shanxi. He and the relevant officials from Shanxi Coking Association both said that it is difficult to estimate the exact number of enterprises that will go bankrupt at present, but those that close down are not necessarily small-scale enterprises. Although large coking enterprises may receive some support in terms of **policy**, smaller companies are more flexible when dealing with market risks; they can take appropriate actions in a timely manner, and their property losses are not as severe as those of larger enterprises. Private coking enterprises are eager for support. How did domestic coking enterprises end up in this situation? Industry insiders from Shougang as well as officials from the China Coking Association have stated that the severe survival crisis faced by coking enterprises is mainly due to the impact of the financial crisis. Under the impact of the financial crisis, the steel industry, which is the most important downstream sector for the coking industry, suffered a downturn. In the absence of large-scale production cuts, steel mills strived to reduce their production costs, demanding that coke prices move in line with steel prices, thereby pushing those prices down repeatedly. Tan Ke added in his analysis that in previous years, the entry barriers for the coke industry were too low, resulting in severe overcapacity in this sector. Because the low entry barrier means that it does not require much capital to enter the coke industry, coke production enterprises are mainly of small and medium size. An industry dominated by small and medium-sized enterprises faces extreme difficulties in surviving between the two large industries of coal and steel. Although senior officials from Shanxi Coking Association and Coking Group, as well as staff from the sales department of China Coal Xuyang Company, all admit that there is severe production restriction in the coke industry with less than half of the capacity being utilized, they all deny that the root cause of the severe overcapacity in this industry lies with the coking enterprises themselves. Employees from Shougang also said that many large state-owned steel companies now have their own coking plants, and most of them can avoid purchasing coke directly by opting to buy coking coal instead in order to reduce production costs. “Failing to adjust the existing industrial layout and instead continuously encouraging large state-owned steel enterprises to expand their scale, as well as building numerous coking plants, is the direct cause of the severe overcapacity in China’s coking industry. ”That’s how the senior official analyzed it. He emphasized that over 90% of the coking enterprises in Shanxi Province met the relevant industrial policies in force at that time; these enterprises were up to standard in terms of production technology, scale, and environmental protection requirements, and it was not easy for them to develop. Since both the central and local authorities agree that there is a severe overcapacity in the current coke industry, why are they still encouraging large state-owned steel companies to build more coking plants? According to statistics, in 2005, 57.8% of the new coke production capacity in the country came from coke ovens built by steel companies themselves, while this figure was 42.2% in 2006. This senior official described the current situation in the coke industry as frustrating, saying that efforts are made to encourage its development while at the same time stifling those existing elements within it. He said that such an approach is not only a huge waste of resources but also results in **significant losses of property. Since many coke manufacturers rely on bank loans for funding, any restructuring of these companies would mean **losses in the order of hundreds of billions of yuan**. Faced with the introduction of such inconsistent industrial policies, a senior executive from Shanxi Coking Group bluntly pointed out that due to the close ties between the China Coking Association and the China Iron and Steel Industry Association, its views do not represent those of coking enterprises, nor does it fully stand on their side. To such an extent that **when relevant departments formulate industry policies, genuine representatives of the interests of coking enterprises are unable to take part in the process. This senior official suggested that **adjustments should first be made to the export policies of the coke industry. At the current stage, attention should be paid to coke exports, allowing for an appropriate increase in export volumes to address the shortfall in domestic coke demand ； Secondly, research is conducted within the framework of the development strategy for bulk coking coal, and large steel companies are no longer encouraged to build coking plants ； Once again, it is necessary to establish the status of independent coking plants; they are the core of the coking industry and also those facing the greatest \"survival crisis\" at present ； Finally, joint ventures in the coke industry are encouraged, so that steel groups can invest in the coke production sector in Shanxi and other coke-producing areas. Many of the current coking enterprises are private companies. These enterprises are eager to develop, but they truly lack the necessary resources in terms of management. It would be an excellent solution if large state-owned steel companies could invest in or take control of such coking enterprises. It not only enables the effective use of existing resources but also promotes the simultaneous development of the two industries. The \"Implementation Opinions of the People’s Government of Shanxi Province on Accelerating the Development of the Capital Market\" (hereinafter referred to as the \"Opinions\") and the \"Development Plan for Shanxi Province’s Capital Market 2009–2015\" (hereinafter referred to as the \"Plan\"), which have been in preparation for some time and underwent several revisions, were officially released recently. The Plan lists the push for the overall listing of the five major coal industry groups in Shanxi Province as one of the “six key projects” for the development of the capital market. Wang Hua, director of the Capital Office of Shanxi Province, said in an exclusive interview with our newspaper: “After the issuance of the ‘Opinions’ and the ‘Plan’, the issue of bringing the five major coal mining groups public has become a key decision for Shanxi Province; there will be greater support, and progress will be faster.” ” The five major coal industry groups in Shanxi Province include Tongmei Group, Jiaomei Group, Lu’an Group, Jinmei Group, and Yangmei Group. Previously, apart from Jinmei Group, the other four major groups had already listed some of their assets. This time, the Plan sets a relatively clear timeline for the overall listing of the five major coal industry groups: striving to get Lanyan Shares of Jinmei Group listed by 2010 ； The goal is to have 1 to 2 coal industry groups go public as integrated entities by 2012, with the top five coal industry groups essentially completing their integration and going public by 2015. Full listing to be achieved within 6 years: The idea of pushing for the full listing of the five major coal mining groups in Shanxi Province has existed for a long time, but it is the first time that Shanxi Province has explicitly identified this as a priority for the development of its capital market and set a timeline for it. The Plan provides an explanation for this new initiative: the development of the five major coal industry groups is crucial to the overall development of Shanxi as well as to the country’s energy security. The five major coal mining groups account for over half of Shanxi Province’s total coal production, and this proportion is set to increase further as coal resource integration progresses. Previously, a official from Shanxi Province said in an interview with our newspaper that in the future, the share of production held by the five major coal companies is set to rise to around 70%, which makes it clear just how important these five coal companies are. Advancing a full listing is regarded as the essential path for the five major coal companies to grow and strengthen. Wang Hua said, “Firstly, the five major coal companies cannot achieve leapfrog development unless they go public as a whole.” Second, for Shanxi Province, there is a lack of large and strong multinational corporate groups like Taiyuan Iron and Steel Group; the enterprises there are either large but not strong, or strong but not large. To make the five major coal companies larger and stronger, the only way is to develop the capital market. ” In addition, a full listing is also considered to be a responsibility toward minority shareholders. “The listing of individual assets may infringe on the rights of minority shareholders due to competition among peers; therefore, from this perspective as well, it is necessary to pursue a full listing. ”Wang Hua pointed out. According to our newspaper, due to the varying levels of emphasis placed by various groups on advancing the process of overall listing, the progress in this regard varies at present; among them, Coking Coal Group and Tongmei Group are making faster progress. In May 2008, Coking Coal Group proposed to accelerate the process of overall delisting and going public, to push forward efforts toward the group’s full listing, and held a meeting to select intermediary agencies for this purpose. Subsequently, Coking Coal Group also entered into an agreement with China Cinda Asset Management Co., Ltd., one of the shareholders of its subsidiary Xishan Coal and Electricity (000983.SZ), to set the goal of a full listing. Meanwhile, Tongmei Group incorporated Yanzishan Mine of Yunganggou No. 5 Mine into its listed company Datong Coal Industry by injecting assets in stages by the end of 2008; this private placement was viewed by the industry as the first step toward Tongmei Group’s full listing. According to Tongmei Group’s original plan, the overall listing was to be completed by 2014, so that Datong Coal Industry could become the only entity within Tongmei Group to engage in coal mining and processing operations. While the overall listing of the five major coal companies was proposed, Jincheng Coal Group, one of these five, has yet to go public; therefore, pushing for its listing has become an even more urgent task. The Plan proposes to strive for the listing of Jinmei’s Blue Flame Shares by 2010. In 2003, Jinmei Group attempted to take Blue Flame Shares public through an IPO, but this effort was unsuccessful, and the process of listing was halted as a result. In April 2008, Blue Flame’s initial public offering failed to pass the CSRC’s approval. Wang Hua told our newspaper that Lanyan Shares’ revised plan has been submitted to the CSRC once again for re-examination. While pushing forward with the listing of Blue Flame Shares, the Plan aims to have 1 to 2 coal industry groups go public as a whole by 2012, with the top five coal industry groups essentially completing their full public listings by 2015. Wang Hua pointed out that all five major coal mining groups are state-owned enterprises under provincial jurisdiction; therefore, the way in which they go public as a whole, and the speed at which this process takes place, ultimately depend on the level of emphasis placed on it. In his view, with the introduction of these \"Opinions\" and \"Plans\", **the support for the overall listing of the five major coal mining groups will certainly increase, and these groups will face excellent historical opportunities for such an listing. Driving the coal and coking sector forward, Wang Hua said that the overall listing of the five major coal companies is actually necessary for the development of Shanxi Province’s entire capital market, as without large companies to drive it, the capital market cannot develop rapidly. In addition, these large conglomerates are also key players in the development of capital markets; in addition to issuing stocks, they also engage in fund management, bond issuance, and futures trading, making them comprehensive entities within the capital market. The Plan requires the five major coal enterprises to be adept at grasping the development trends of the coal market and capital market, to formulate comprehensive plans for going public as soon as possible, to protect their interests, and to seize the right timing for such listings, so as to achieve leapfrog development through the capital market. Wang Hua pointed out that Shanxi should enhance the \"Shanxi sector\" in the Chinese stock market through the simultaneous listing of its five major coal industry groups, thereby creating a \"coal and coking sector\" in the Chinese stock market and gaining a say in the international coal market. At present, there are 9 listed companies in Shanxi in the coal and coking energy sector, accounting for one-third of the total 27 A-share listed companies in the province, thus forming a \"Shanxi sector\" with distinct coal and coking industry characteristics. Recently, two other provincial coal enterprises in Shanxi Province – Shanxi Coal Transportation Group and Shanxi Coal Import and Export Group – have both entered the capital market through backdoor listings, adding new players to Shanxi’s coal and coking industry sector. Among them, Shanxi Coal Transportation Group used Tai Gong Tian Cheng as a shell company, while Shanxi Coal Import and Export Group used CNPC Huahua Construction as a shell company. ). The State-owned Assets Supervision and Administration Commission of Shanxi Province requires the two aforementioned groups to carry out the restructuring of their core business assets and the listed companies as soon as possible after acquiring control stakes in those companies. The reason why Shanxi Province attaches such importance to the development of the capital market in the coal and coking sector is also to leverage the role of the capital market in upgrading and transforming traditional industries, enabling them to adopt modern approaches. This approach aims to help coal-related enterprises in areas such as coal mining, coking, metallurgy, chemicals, power generation, and building materials to expand their production scales and improve their operational efficiency through direct financing, while phasing out outdated production methods and extending their industrial chains upstream and downstream. The new round of large-scale coal resource consolidation that Shanxi Province is set to pursue in the near future also makes it even more urgent for major coal companies to raise funds or refinance through capital markets, in order to secure the capital needed for mergers and acquisitions. According to the Shanxi Province Coal Industry Adjustment and Revitalization Plan, by 2011 only 1,000 coal mines would remain in Shanxi, representing a reduction of 60% from the existing 2,598 coal mines. Wang Hua said, “The capital market will be the main channel for raising funds, with the money obtained through it being used to promote reform, restructuring, and resource integration.” Actively create conditions for enterprises to raise funds from capital markets, while simultaneously raising capital from those markets to further facilitate resource integration. ” A research report by Guoxin Securities states that coal is a non-renewable and depleting resource; for coal-related listed companies, the continuous acquisition of such resources is the key factor determining their future development. Therefore, \"injecting group resources into listed companies – the group obtaining funds for acquisitions – continuing to acquire resources – and injecting them again\" will become one of the main development models for coal-related listed companies. At the same time, Shanxi Province will also give priority support to the establishment of the “Shanxi Province Coal Resources Integration Fund”. Wang Hua told our newspaper that the establishment of this fund relies primarily on Shanxi Securities, and its purpose is clear: to facilitate resource integration. The Shanxi Province Energy Investment Fund, established earlier, received approval from the State Council last September. According to the plan, the fund is set to complete its fundraising by 2010 and begin operations, with the goal of doubling its value by 2015. It is understood that the purpose of establishing the Shanxi Province Energy Investment Fund is mainly to address the issue of limited financing channels for the development of new coal-related industries in Shanxi. Four obstacles need to be overcome. Shanxi Province aims to leverage the simultaneous listing of the five major coal companies in order to boost the coal and coking industry sector, but achieving such simultaneous listing is not something that can be accomplished merely with some form of support; there are still numerous obstacles that must be surmounted. Wang Hua told reporters: “The main difficulties faced by the five major coal industry groups in pursuing a full listing include issues related to land valuation and related procedures, the valuation and capitalization of mining rights, problems arising from historical loans from banks, as well as the issue of stripping out non-operational assets.” ” It is understood that these are merely the common issues faced by the five major coal industry groups; each group still has its own problems to address. For example, regarding land valuation and related procedures, Wang Hua said, “It’s difficult to list the company as a whole without going through these procedures, and going through them requires a large amount of capital.” ” The second is the issue of the valuation and capitalization of mining rights. For the five major coal mining groups to go public as a whole, it is necessary to capitalize mining rights; however, full capitalization will inevitably lead to an expansion of assets, thereby harming the interests of minority shareholders. Wang Hua pointed out that it is necessary to find a balance in safeguarding **interests, corporate interests, and the interests of minority shareholders. Third is historical formation and specific banking loan issues. This mainly refers to the conversion of grants into loans; during a specific period, the grants provided to coal industry groups were later changed into loans, which in turn became investments, representing capital contributions. It is understood that currently, the five major coal mining groups all face similar problems to varying degrees, and the scale of these issues is significant. Wang Hua pointed out that converting the allocated funds into equity presents a special challenge: it is necessary to determine the amount of his equity, and to ensure that his rights are recognized at the time of listing. Another issue is the divestiture of non-operational assets. Historical factors have led to the problem of enterprises handling social functions being particularly prominent among the five major coal mining groups, resulting in a heavy burden on these enterprises. It is understood that although many groups have withdrawn so far, they have not withdrawn entirely. What needs to be resolved is: who will bear the losses resulting from the separation of these assets, which were originally invested by enterprises? Taking Tongmei Group as an example, when it was restructured into a joint-stock company in 2001, it actually transferred all the profitable assets related to coal production and operation, including Mine 5 in Yunganggou, to the listed company. However, by the end of 2002, it was forced to reduce its capital shares so that Mine 5 in Yunganggou could return to the group company. The prospectus of Datong Coal Industry explains the reasons why Tongmei Group sought to regain those assets: \"Since Tongmei Group transferred all the profitable assets related to coal production and operation into the company, the remaining assets had poor profitability. Moreover, the group had to undertake numerous social responsibilities in the mining areas, which affected its ability to continue operating. If the group’s viability could not be ensured, it would inevitably impact the company’s sustainable development.\" ” And even until last year, when the Tongmei Group injected assets into Datong Coal Industry, it was only the Yanzishan Mine of Mine 5 in Yunganggou that was incorporated, rather than a complete transfer of assets in one go. Qian Jianjun, the secretary of the board at Datong Coal Industry, told reporters: \"Injecting funds into Mine 5 in Yunganggou all at once will have a negative impact on the group, and it will be detrimental to its survival and development.\" ” Wang Hua noted that in response to the difficulties associated with the overall listing of the five major coal mining groups, Shanxi Province is conducting specialized studies; without resolving one of these issues, it will be difficult to move forward with the overall listing. Shanxi Province **also requires the relevant provincial departments to actively study the issues affecting the overall listing of the five major coal mining groups, and to come up with policy guidelines as soon as possible.