Chinese government pushes large coal merger forward

China has approved the merger of two of Shandong Province's leading state-owned coal mines, Shandong Energy Group and Yankuang Group. This decision creates a new large company that is one of the world's leading producers and consumers of fossil fuels. The combined company, China's second largest coal producer after China Energy Investment Corporation (CEIC), will trade as Shandong Energy Group. It is expected to make up nearly 7% of the country's total coal production. Gewin Ho, a vice president and senior loan officer at Moody's, said the combined group's credit profile continues to be exposed to significant carbon transfer risk and reliance on volatility due to the fact that it will source most of its business from coal mining the price of coal will be restricted. "While support from the Shandong provincial government should continue to be granted, it will be limited by the combined company's mostly commercial and competitive operations," Ho said in a note to investors in July. The merger of Yankuang and Shandong Energy comes at a time when China is pushing reform of its state-owned companies. The newly merged company will further increase its competitiveness in the marketplace as it will have an entire industrial chain that integrates coal mining, coal-fired power plants and coal chemicals, the International Energy Agency analysts said in July. Other coal-producing provinces in China are pushing for similar consolidations to improve efficiency. The government of Shanxi, the country's second largest coal-producing province, approved the merger of the state-controlled producers Shanxi Coal Import Export and Shanxi Coking Coal earlier this year.