China's National Development and Reform Commission has ordered local governments to strengthen supervision over coal mines and severely punish those producing beyond their approved capacity, according to a circular released on its website on August 21. 

This is the latest move taken by the government to address worsening oversupply in the world’s top coal producer and consumer, where prices of the fossil fuel have dropped to the lowest in the past seven years.

Some mines have been producing beyond their approved capacities, causing severe disruptions to the market order; overproduction must be effectively curbed to restore market balance, the NDRC said. 

A week ago, three ministerial authorities including the State Administration of Coal Mine Safety said in a circular that they would conduct a joint inspection on safety, overproduction and unapproved capacity expansion of coal mines owned by central-government companies.

The NDRC asked local governments to submit a report of all registered mines and their approved production capacities, as well as compliance pledge signed by miners to the NDRC, the National Energy Administration and the State Administration of Coal Mine Safety by the end of August.

Miners are also required to submit their quarterly or monthly production plans to the local authorities, and actual output must not exceed approved volume by more than 10%, while those without plans must not exceed the 1/12 of their approved capacities.

Miners that had produced more than half of their annual capacities in the first half of the year need to make production plans properly to ensure whole-year output within approved capacities, the NDRC said.

Companies found to be violating their approved capacities will have their licenses suspended and face a fine of 500,000 yuan to 2 million yuan ($81,300-$325,203), while mine owners will also be fined between 30,000-150,000 yuan.

Mines that have started production before receiving necessary approvals will also be shut, and mines that are yet to obtain mining and safety licenses are prohibited to start production, the circular said.

China’s coal sector has been severely hit by excess supply and sluggish demand, with more than 70% of the miners plunged into the red, according to the China National Coal Association.

Prices of 5,500 Kcal/kg NAR thermal coal traded at northern China’s Qinhuangdao port, the benchmark for the domestic market, have slumped nearly 25% since the start of the year, showed the Fenwei/Platts CCI1 index.