China’s Coal Consolidation Continues With Plans to Merge 3 Firms

China is taking another step to consolidate its coal industry with plans to merge three firms that could form the country’s third-biggest miner.

Shanxi province, the No. 2 coal producing region, is preparing to restructure three of its state-owned firms, according to people familiar with the matter.

China’s Coal Consolidation Continues With Plans to Merge 3 Firms

The merger would underscore China’s efforts to consolidate its coal industry to concentrate production in the hands of larger, more efficient firms to streamline the business. Despite global efforts to stem use of the most polluting fuel, its abundance and low cost in China have put it on course to dominate its power sector for years to come.

In the latest possible restructuring, Lu’An Mining Industry Group’s newly established chemical unit has been picked as one of the entities that could receive assets from Yangquan Coal Industry Group and Shanxi Jincheng Anthracite Mining Group, said the people, who asked not to be identified because the information isn’t public.

No final decision has been made and details of the merger are still in the works, said the people. The news was first reported by China’s Energy Magazine. Calls to Lu’An and Jincheng went unanswered. Yangquan Coal Industry didn’t reply to an emailed request seeking comment.

A more unified mining industry could improve its bargaining power on coal prices and further intensify the pressure on power companies, Xue Jing, a director at the China Electricity Council, said in a seminar on Wednesday.

Combined revenues of the three Shanxi-based companies in 2018 were 522 billion yuan ($75 billion) with production of 227 million tons of coal, according to data from the China National Coal Association. The output total would trail only China Energy Investment Corp. and a proposed combination of Yankuang Group Co. and Shandong Energy Group Co. that was signaled earlier this week.

Earlier this year, Shanxi Coking Coal Group announced plans to merge Shanxi Coal Import & Export Group.

Lu’An’s listed unit, Shanxi Lu’an Environmental Energy Development Co., traded down 0.3% at 6.8 yuan at the midday trading break in Shanghai. Yanguan’s Yang Quan Coal Industry Group Co. slipped 0.2% at 4.99 yuan. Jincheng is a controlling shareholder of Shanxi Blue Flame Holding Co., which fell 2.4% in Shenzhen.

©2020 Bloomberg L.P.

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