(Bloomberg) -- China’s great coal squeeze has notched up another victim, even as prices of the mineral show signs of moderating.

Inner Mongolia Yitai Coal Co. said on Wednesday it will suspend construction of a 16 billion yuan ($2.4 billion) coal-to-chemicals plant in northern Xinjiang near the border with Kazakhstan, writing down 2.8 billion yuan in the process. Higher coal prices had increased operating costs while volatile oil markets and uncertain taxation issues also raised questions about the venture’s profitability, the company said in a Hong Kong stock exchange filing.

Yitai’s mainland listing fell nearly 10% before paring losses.

Coal costs soared in China in late 2021 as a lack of fuel caused economy-crippling power shortages throughout the country. The government stepped in, ordering miners to boost output to record levels, putting a cap on prices, and forcing producers to sign contracts to guarantee supply to power plants.

Coal-to-chemical facilities received no such guarantee, and coal for non-power use sells at a significant premium to fuel sold to generators. Yitai said buying coal at its other chemical facilities has risen from 35% of operating costs in 2018 to 60% now.

China has pushed the expansion of its coal-to-chemicals industry because of its dependence on imported oil and natural gas, the traditional feedstocks for chemicals. The move has posed environmental challenges because emissions from the projects are significantly higher than gas-based production, according to the International Energy Agency.

Yitai’s suspension comes as China’s coal industry may be turning a corner. Prices are falling and the winter has mostly passed without any shortages after the mining boom. Stockpiles at northern ports are at their highest level for the season in at least five years, according to Morgan Stanley analysts. 

The Week’s Diary

Thursday, Feb. 9

  • China to release January aggregate financing & money supply by Feb. 15

Friday, Feb. 10

  • China inflation data for January, 09:30
  • China weekly iron ore port stockpiles
  • Shanghai exchange weekly commodities inventory, ~15:30

On The Wire

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