Taihang Shipping: Dark times for Chinese coal demand

Taihang Shipping: Dark times for Chinese coal demand

Amid the economic slowdown and pressure to improve the nation’s air, the doldrums in the domestic coal trading market is still very evident. Taihang Shipping, the fleet controlled by Shanghai-listed Shanxi Coal International Energy Group, is making efforts to get its business back on track.

Taihang Shipping was established in 2009 in Qinhuangdao, one of the largest coal trading ports in the world. The company operates both domestic and international shipping services with a fleet of ten bulkers and a total capacity of 500,000 dwt. It has another two ships under construction.

According to Sun Yaming, president of Taihang Shipping and Shanxi Coal International Energy Group, the overcapacity problem and the government’s restrictions on dirty coal have intensified the gloomy outlook in the coal market, while the price drop in oil and gas has also reduced the country’s reliance on coal.

China’s National Development and Reform Commission (NDRC) has made a plan in September to cut coal’s percentage in the country’s energy consumption from the current 66% to 60% while meeting the new power demand through non-coal power generation by 2020.

China’s coal industry has been suffering from depression since 2013. According to statistics from the China National Coal Association, more than 70% of the country’s coal companies suffered losses in the first half of 2015 and the total profit of the companies has dropped nearly 90% compared to the same period in 2012.

Sun reckons the coal price has almost hit the bottom and there is not much room for the coal price to drop further. However, he thinks the dry bulk shipping market will take another two to three years to recover. Taihang Shipping needs to be prepared for the next round of “golden times” of the market, Sun says.

“I think now fleet optimisation, business diversification and cost control are the only choices for us, otherwise we will be phased out of the market,” Sun says, adding that the company is currently looking to buy two to four secondhand bulkers in order to improve the profitability and sustainability of the firm.

The company has been making efforts to optimise its cost structure through slowsteaming and it has made progress in minimising losses in the past two years.

Taihang Shipping completed a coal shipping volume of 5.83m tons in the first half of 2015, up 25% year-on-year, despite a reduction in total production volume of the parent group. It has also narrowed losses by RMB7.3m ($1.15m) compared with the same period of 2014.

Taihang Shipping recently signed an RMB600m ($94.1m) sale and leaseback deal with China National Foreign Trade Financial Leasing Company for four bulkers in its fleet. Sun says the deal greatly improves the financial flexibility of the company.

Sun reveals that parent Shanxi Coal International is working on a strategy to transform from a traditional coal producer to an integrated service provider in the industry, and Taihang Shipping is a key component to this strategy.

This article first appeared in the just published latest issue of SinoShip magazine, which readers can access for free by clicking here.

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