On 12 August, after a seven-year pause, China Shenhua Group, China’s biggest coal producer, once again launched a large-scale asset merge and acquisition program, marking the fulfillment of the agreement on “avoiding competition in the same industry”. This agreement, first signed in 2005, was initially realized after the merger of National Energy Group with Shenhua and Guodian in 2018, and after two extensions, it was stipulated to be fully fulfilled before 2028.
The biggest change this acquisition brought to Shenhua Group is that it enabled the company to control five related industries, realizing a closed loop from coal mining to downstream coal product sales. These five main industries are: coal mining, coal-fired power plants, the coal chemical industry, seaborne and coastal shipping, and a coal trade e-platform.
Against this backdrop, Shenhua Group has secured stable coal supplies from its upstream mining arms. Meanwhile, in the downstream sector, the coal-fired power plants and coal chemical facilities ensure reliable sales of Shenhua’s different types of coal, with low-calorific-value thermal coal mainly used for power generation and high-calorific-value thermal coal serving as the raw material for coal chemical production. To better serve the coal upstream and downstream, Shenhua has also made arrangements in the seaborne and trading markets. Its fleet (mostly used for domestic transportation) and port investments help to reduce shipping costs, while its own coal trading platform reduces its external dependence.
Ultimately, this has formed a coordinated model “from mine to terminal,” achieving breakthroughs in supply assurance efficiency and counter-cyclical resilience.
After the acquisition, China Shenhua’s annual coal domestic output is slated to jump from 327 mln mt to 430–450 mln mt, with an increase of nearly 90% of its mining capacity. Coal-fired power generation capacity will rise from 46 GW to about 61 GW, an increase of 33%, further strengthening and demonstrating the advantage of integrating mining and power generation.
Meanwhile, coal-to-olefin capacity will surge from 600,000 mt per year to 3.6 mln mt per year, making it one of the world’s largest coal chemical producers. Furthermore, Shenhua’s shipping arm owns 62 vessels with a total capacity of 3.47 mln dwt, ranking it second in China’s coastal bulk carrier fleet and first in transport volume in 2024.
Marking another large-scale merger and restructuring, back in 2018, Shenhua and Guodian merged to form the National Energy Group, a key measure in response to Beijing’s “supply-side reform” to resolve excess coal and power generation capacity. This was Shenhua’s first attempt at coal-power integration. By simultaneously controlling coal production and thermal power generation, its core logic lies in building a coal-power integration hedging mechanism: in periods of low coal prices, profits from the power sector support the coal business, while in periods of high coal prices, sufficient supply from its self-owned coal mines will reduce its power generation costs.
Behind this series of mergers and restructurings lies the government’s goal to continuously increase the concentration of China’s coal industry. Before the supply-side reform in 2016, China’s coal CR10 (top ten miners’ concentration) was only 40%. With the implementation of supply-side reforms (including the 2018 Shenhua–Guodian merger), CR10 rose to 55% by 2020.
However, following the need to secure domestic coal demand, Beijing turned a blind eye to overproduction at some coal mines (especially small ones), and the CR10 subsequently fell back to around 50%. With Shenhua’s asset restructuring, CR10 is expected to rebound to 60%. In comparison, the US CR4 is about 70%, while in India, as Coal India controls over 80% of national output, its CR10 is nearly 100%. All these points to the fact that China still has a long way to go to improve its capacity concentration.
A monopoly is clearly a double-edged sword for the rest of the market players. On one hand, economies of scale should help reduce Shenhua’s production costs, while significantly enhancing its competitiveness. However, in the wake of rising market share and the monopoly of key upstream and downstream infrastructure, coal prices could see some support.
The abovementioned support shall include not only domestic coal producers, but for imported coal traders as well. The rebound of domestic prices will support import margins, thereby boosting the Chinese market’s demand for imported coal. Since the beginning of this year, the margin of import coal has long fallen into negative territory, thereby suppressing import appetite from major market players. This has led to a significant decline in coal import volumes.
In the first seven months of this year, customs data show China’s coal imports fell 13% y-o-y. Meanwhile, AXSMarine data indicate seaborne imports fell 18% to 193.7 mln mt. Indonesian shipments, for instance, saw a decline of 24%. This can be attributed to the Indonesia HBA coal index update. Indeed, after the April increase in Indonesian coal prices the premium of Indonesian coal over domestic coal peaked at $8.2/mt in mid-June, significantly suppressing Chinese buyers’ import demand. With the potential recovery of coal prices, subject to any unexpected downturn in downstream power demand, we anticipate that seaborne coal trade will receive a ‘shot in the arm’ and continue to serve as a quality supplement to China's coal demand.
