Regarding the measures to alleviate the difficulties of coal enterprises, the opinions of the coal industry were solicited, which mainly involved the suspension of approval of new coal mine projects, the re-application of illegal coal mines in production, the removal of production capacity within 3 years, the reduction of the number of working days for coal enterprise workers, the strict control of overproduction, and the promotion of coal power generation. Specific measures such as integration, reducing the social burden of coal enterprises, and encouraging the securitization of state-owned assets.

The "cutting capacity" of the coal industry exceeded expectations. The solicitation made it clear that starting from 2016, the approval of new coal mine projects will be suspended within 2 years, the approval of technical transformation projects that mainly improve production capacity will be suspended, and the approval of coal mine production capacity increase projects will be suspended. 130%-150% of excess capacity will be eliminated. In about three years, 300 state-owned coal mines will be withdrawn and 300 million tons of production capacity will be eliminated; 4,000 small coal mines will be closed and 400 million tons of outdated production capacity will be eliminated; 1 million people will be diverted. The implementation of "replacing subsidies with rewards" for the withdrawal of production capacity. For every 1 ton of coal production capacity withdrawn, the government will reward and subsidize 150 yuan (100 yuan for the central government and 50 yuan for local governments). The amount of "de-capacity" exceeded our previous estimate of 450 million tons in 2 years.

Reducing the number of working days has a limited impact on output, and indirectly reduces some labor costs in coal mines. It is understood that it is clear in the consultation that, starting from 2016, the annual design working days of coal mines will be adjusted from 330 to 267 days on a trial basis within 2 years, the coal mine capacity will be appropriately reduced, and statutory holidays and concentrated rest on Sundays will be implemented. According to the above reforms, the working days of coal miners will be reduced by about 20%. Given the resilience of coal mine production, the move is expected to be less effective in reducing coal production.

Promoting the integration of coal and electricity will reduce the profit volatility of thermal coal enterprises. Before the end of 2016, the five central power generation enterprises and local state-owned power generation enterprises above a certain scale will implement controlling stakes in coal mines and ensure that the coal mine capacity reaches more than 20% of the actual coal consumption of power generation enterprises in 2015. The coal mine capacity reaches 30% and 40% of the actual coal consumption of power generation enterprises in the previous year respectively. The main function of this measure is to realize the binding of interests between coal companies and power companies, to stabilize the sharp fluctuations in coal prices, and to avoid vicious competition under the coal-electricity linkage mechanism.

Overproduction will be strictly controlled, and 300 million tons of overproduction is expected to be limited to a certain extent. It is clearly stated in the solicitation that production with overcapacity shall be ordered to suspend production; for those found to have continuous overproduction, the period of shutdown shall not be less than 6 months; for those whose production capacity does not meet environmental protection regulations after the previous increase in production capacity, production shall not be organized according to the new capacity. . The analysis believes that there are specific measures for super-capacity production, and the punishment is relatively strict. It is expected that this policy will be implemented and strictly enforced, and the 300 million tons of excess production capacity will be effectively controlled.

Investment suggestion: From the perspective of "the leftover is king", we suggest that everyone pay attention to Shanxi and Shaanxi-related listed companies with excellent resource endowments, such as Xishan Coal and Electricity, Lu'an Environmental Energy, Shanxi Coal International, and Yongtai Energy. At the same time, the acceleration of "de-capacity" will also bring about an explosion in the demand for non-performing asset disposal projects in coal mines, and Hyde, a listed company with a mining background in non-performing disposal, will benefit the most.

Article source: Beijing Morning News