Three Major Downturns in China's Coal Market: A Comparative Analysis
Time:2025-07-01 09:51:18 Source:CCTD
Edited and Updated by Ethan Ma
July 1, 2025
Key Points:
·Three coal price downturns share oversupply but differ in impact and context.
·China’s energy mix is shifting from coal dominance to diversified clean sources.
·Coal production and trade have centralized in western regions and large enterprises.
·The current downturn shows pressure but may be less severe than past cycles.
Since the market-oriented reform of coal pricing, China’s coal industry has experienced two full cycles of sharp price fluctuations. The first significant downturn occurred from 1998 to 2002, and the second from 2012 to 2016. Since the second half of 2023, coal prices have entered a new cyclical downturn.
While all three downturns were characterized by temporary coal oversupply, they differ significantly in background, depth, and impact.
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Energy Structure: From Coal Dominance to Diversified Sources
During the first major downturn in 1998, coal accounted for 70.9% of China's total energy consumption. Nuclear, wind, solar, and shale gas had not yet been developed at scale, and their impact on coal demand was negligible.
By the second downturn in 2012, coal’s share had declined to 68.5%.
Renewable energy had gained momentum: its installed capacity accounted for 28% of total power capacity, and renewable generation made up around 20% of total electricity output, significantly reducing coal demand.
Currently, while total energy consumption continues to rise, coal's share is declining. Non-fossil energy sources now account for over one-third of power generation. In 2024, coal made up 53.2% of energy consumption, oil 18.2%, and natural gas 8.8%. Renewable sources contributed about 35% of total electricity generation.
Production Pattern: From East-Centric to West-Centric Dominance
During the first downturn, major coal-producing regions were in North and East China. Transport distances were shorter and freight costs lower. Large state-owned mines and small local mines had comparable capacity.
By the second downturn, coal production had shifted in stages across East, Central, and West China. Transport distances and freight costs rose. Industry consolidation led to the formation of mega coal companies like Jizhong Energy, Shandong Energy, and China Pingmei Shenma Group, with state-owned enterprises taking the lead.
In the current downturn, production has further concentrated in Central and Western regions and among large corporate groups. Western output has surpassed 3 billion tons, accounting for 60% of the total. Xinjiang has risen rapidly to become the fourth-largest producer. The Central region contributes over 33%, while the East and Northeast have dropped to around 3% and 2% respectively.
Meanwhile, the number of coal mines fell from 13,000 in 2015 to fewer than 4,300 in 2024. The average single-mine capacity now reaches 1.4 million tons per year. There are 83 ultra-large mines producing over 10 million tons annually, including 10 that exceed 20 million tons. The top 15 producers account for more than 60% of national output; the top 7 alone contribute over 45%.
Trade Role: From Net Exporter to Net Importer
During the first downturn, China was a net coal exporter with minimal competing pressure of import. In 1999, export-friendly policies boosted coal exports. In 2003, exports peaked at 94.02 million tons.
Since 2009, China has become a net coal importer, with imports exceeding 100 million tons that year. Between 2012 and 2014, annual imports remained around 300 million tons.
In the current downturn, imports have surged. In 2023, China imported 474 million tons, up 61.8% year-on-year, a new record. In 2024, imports climbed further to 543 million tons, up 14.4%, setting another record high.
Capacity Fundamentals: From Shortage to Long-Term Surplus
During the first downturn, coal capacity was severely lacking. The output ratio of large, medium, and small mines was 40:17:43. Township mines played a major role, with an average capacity of only 17,000 tons/year. Due to insufficient reserves, any recovery in demand quickly led to supply shortages.
The second downturn resulted from the coal industry's "golden decade" of overinvestment, which caused severe overcapacity. By 2015, total operating and under-construction capacity reached 5.7 billion tons/year.
Currently, with previous supply assurance measures, capacity has expanded further. Existing capacity exceeds 5 billion tons/year, with another 500 million tons/year under construction. This includes 24 ten-million-ton projects with a combined design capacity of 310 million tons/year. A long-term oversupply pattern has been established.
Transport bottlenecks have been largely resolved through expanded rail networks like "West-to-East Coal Transport" and "North-to-South Coal Transport," along with power and gas transmission lines and improved intermodal logistics.
Market Impact: Deep Losses, Intensified Divergence, and Mounting Pressure
The first downturn caused the most damage to enterprises and workers. Over 90% of key state-owned coal companies posted losses in 1998, totaling over RMB 10 billion. Worker employment and livelihoods were severely affected.
The second downturn's impact varied by region and enterprise type but was generally less severe. Among 36 large coal companies in major producing provinces, 20 suffered losses and 9 were marginal. Many delayed or withheld wages. Older SOEs faced even greater hardship. In provinces like Heilongjiang, Anhui, Jilin, Hebei, Qinghai, Jiangsu, Guangdong, Guangxi, and Sichuan, large-scale losses were common. In contrast, giants like Shenhua and Yitai with quality resources and fewer legacy burdens retained market dominance and profitability.
In the current downturn, initial impacts are emerging. In 2024, 2,175 coal enterprises reported losses, with an industry-wide loss ratio of 42%. From January to May, revenue in coal mining and washing fell 19.2% year-on-year, while total profit dropped 50.6%. Some companies have already begun cutting salaries.
Outlook: Shallower Downturn, Uncertain Future
The depth of the current downturn may be milder than previous ones. In the first cycle, over 90% of companies were loss-making; in the second, over 70%. In both cases, prices fell below average social production costs. This time, while East and Central China mines and aging facilities may suffer widespread losses, the overall industry loss ratio is expected to exceed 50%.
In terms of price trends, the first two cycles followed a U-shaped pattern of decline and recovery. The current cycle is also likely to see prices rebound after bottoming out. However, production may first peak and then gradually decline, entering a long phase of contraction.
The first and second downturns each lasted around four years. The first ran from late 1998 to mid-2002; the second from early 2012 to mid-2016. If measured from the coal price peak in October 2021, the current cycle has lasted nearly four years. If calculated from the rational price decline after 2023’s supply guarantee, the adjustment has lasted over two years, suggesting the bottom may be near.
What happens next remains uncertain. After the first two downturns, the industry entered a "golden decade" and a "peak boom." Previous forecasts projected China's coal output would peak in 2027 at around 5 billion tons. Current assessments suggest the peak may come earlier, by 2025, and will likely remain under 5 billion tons. Under the 2030 carbon peaking goal, coal output is expected to fall to 4.2–4.5 billion tons by 2030.
(This article was written by Professor Bu Changseng, Professor at the Emergency Management University in preparation and Vice President of the China Association of Work Safety. It was originally published on China Coal News)
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