Yankuang Group, Shandong province's largest State-owned coal company, will continue to shut down outdated capacity and develop clean coal technologies to cope with a fluctuating market, according to its top executive.

"Though coal prices have risen in the past few months, the general trend of downsizing capacity, especially outdated capacity, is not going to change," said Li Xiyong, chairman of Yankuang Group.

The price of power-coal at Qinhuangdao Port rose from 370 yuan ($53) per metric ton at the beginning of the year to 550 yuan per ton in September. Yankuang is concerned that the rising prices could tempt the slashed capacity to resume production, albeit secretly, against the central government's policy to cut capacity.

Yankuang's coalmines in Shandong province have seen capacity reduction of 6.5 million tons per year recently.

Beisu, one of Yankuang's coalmines in Shandong province, is going to be completely shut down in March next year, reducing overall capacity by 1 million tons per year. Beisu went into production in December 1972, and has so far mined 28 million tons of coal.

The shutdown of Beisu coal mine has been rewarded with an incentive of 149 million yuan by the central government.

According to the statistics of the China National Coal Association, the number of coal mines in production and in construction stands at around 11,000. Yet, there are only 1,020 large coalmines with annual capacity of above 1.2 million tons.

There are nearly 8,000 mines with annual capacity below 300,000 tons and 6,500 mines with annual capacity below 90,000 tons.

Yankuang has also shut down its electrolytic aluminum factory, which went into operation in 2003 and has so far produced 1.55 million tons of aluminum ingots and aluminum melt.

The mines shut so far have been turned into service and clean energy companies.

"Our goal is to turn the company into a first-rate high-efficiency clean energy supplier. Coal remains the most important energy resource in China. The clean technologies will help the industry to achieve sustainable development," said Li.

Last year, more than 95 percent of coal companies in China reported losses. Yankuang Group earned a profit of 1.2 billion yuan, down 45 percent year-on-year.

The group has independently developed a compound additive to be mixed with bulk coal to reduce pollution. Such processed coal can reduce soot by 95 percent and saves 15-30 percent energy compared with raw coal. The efficiency is maximum when the coal is burned in the special oven designed by Yankuang.

"Yankuang's high-efficiency clean coal has high heat value, easy to burn, and the fire is easy to control. Moreover, it is not expensive as it has government subsidies. Over time, the clean coal will gradually be introduced to other regions in China," said the lead researcher of the high-efficiency clean bulk coal technology developed by Yankuang, who sought anonymity.

In China, cheap and highly polluting bulk coal consumption is 600 to 700 million tons every year. In Shandong alone, 40 million tons are used per year.

Yankuang's 35,000-ton-per-year factory for high-efficiency clean coal started production in July. It is expected to supply 8,500 tons of clean coal for residents in Jining of Shandong.