Boosting production and ensuring supply in China's coal sector have been important in recent years, both in scale and consequence. Yet, signs now suggest that this once-dominant approach is coming to an end, with supply having shifted from shortfall to surplus.

The policy was born in the wake of a sharp spike in coal prices in 2022. Legally boosting output required adjusting official capacity ceilings, which enabled more mines to ramp up production and eased supply bottlenecks.

By encouraging mines with production potential to unleash their capacity, market supply would be increased, and soaring prices would be curbed, in a bid to strengthen China's energy security.

But as the broader coal-power industrial chain has evolved and the nation's energy transition has gained momentum, supply is now outpacing demand. Prices have softened considerably, repeatedly testing new lows.

The year 2025 saw a still-rising supply, although supply growth slowed compared to previous years. Demand, however, registered the first year-on-year decline since 2017, driven by a cleaner energy mix and lackluster performance in several energy-intensive industries. This signals a profound reversal in China's coal market, moving to surplus again.

Looking ahead to 2026, industry insiders anticipated this relaxed supply-demand dynamic to persist. With China's carbon peak target approaching, the window for policy recalibration appears to be wide open.

In 2025, the National Energy Administration's February energy work guidance called for stabilizing production and enhancing precision and effectiveness in capacity control.

Crackdowns on production beyond approved limits also intensified. Starting in 2024, the National Mine Safety Administration in June banned mines from producing at increased levels without completing formal approval procedures. By July 2025, the clampdown intensified, with new rules mandating strict inspections of mines producing coal beyond permitted capacity.

While some believed earlier that policy stability would prevail in 2026, assuming no major price volatility, developments at the start of this year have upended that assumption.

A rumor, widely circulated earlier this month, claimed that a major coal-producing province was reviewing 52 mines with expanded production capacity.

Allegedly, due to poor performance in fulfilling power coal supply targets for 2024–2025, 26 of these mines were removed from the supply guarantee list. The remaining were temporarily retained, pending further review of their contract compliance in 2026.

Though unverified, the report sent ripples through the industry.

With supply increasingly outpacing demand and a growing consensus around reducing production and stabilizing prices, coal capacity increment is highly likely to contract this year.

Zhang Hong, vice president of the China National Coal Association, emphasized in a January article the need to strengthen management of new coal production capacity and ensure output remains within reasonable levels.

This likely means capacity stabilization rather than expanding it indiscriminately. Simultaneously, 2026 will mark a significant push toward capacity reserve systems, converting some operational mines into standby status, only to be released in times of acute supply stress.

Additionally, existing capacity will undergo further optimization, with smaller, less safe, or poorly-succeeded mines likely to be phased out.

Several key factors will shape China's coal capacity in 2026, including the retirement of outdated capacity, the withdrawal or conversion of expansion projects that failed to complete regulatory procedures, the expansion of reserve capacity, and the handling of non-compliance with long-term coal supply contracts.

The ultimate impact on national capacity will depend on market dynamics, coal company performance, shifts in national and local policy, and even the resolution of municipal debt burdens.

Sxcoal predicts that roughly 85 million tonnes per annum (Mtpa) of new capacity are slated to come online in 2026. This includes about 72 Mtpa of thermal coal and 13 Mtpa of coking coal.

For more details, please refer to our report 2025 China Coal Capacity Analysis and 2026-2030 Forecast, which provides an in-depth analysis of core policies, including the release of safe and efficient capacity, tightening of new mine approval, advancement of the capacity reserve system, and alignment with "dual carbon" targets.

With a wealth of data and charts, alongside clear logic and distinct viewpoints, the report serves as a valuable reference for industry experts focusing on capacity changes and anticipating trends in the supply side. We sincerely invite you to subscribe, gaining deeper industry insights to better grasp the future market dynamics!