As Coal Prices Fall China Could Reinstate Output Restrictions

Coal prices have retreated since surging in 2016, with coking coal prices falling to their lowest price since September this week.

Coal prices climbed in 2016 after China cracked down on its coal miners, forcing them to reduce output to curb pollution and mitigate the glut of coal supplies. These measures were effective, coal production dropped almost 10% and prices across Asia surged after four years of declines. The rapid increase in prices led China to relax its regulations later in the year, but now, according to Bloomberg, the country could reinstate the output restrictions to avoid the return of a supply glut.

According to people familiar with the matter who spoke on the condition of anonymity, the National Development and Reform Commission may resume mining curbs that cap output to an equivalent of 276 days of capacity after heating season ends in mid-March. After heating season ends demand for thermal coal will see a steep decline and that in turn could pressure prices. According to Laban Yu, head of Asia oil and gas equities at Jefferies Group in Hong Kong, the NDRC wants thermal coal prices to trade in a range of 500 yuan to 570 yuan a ton. They are currently around 532.

Meanwhile, Indonesia, the world’s largest thermal coal exporter, has released its latest coal export data which showed coal shipments climbed to a 13-month high of 20.37 million mt in November. Exports increased by 1% year-over-year, and 8% from the previous month. During the first eleven months of 2016, Indonesia exported 207.52 million mt of thermal coal, down 8% from the corresponding 2015 period.

The largest importer of Indonesian thermal coal in November was India at 5.6 million mt, which was down 27% on the year, but 12% higher than October and at a five-month high. China purchased 3.88 million mt of thermal coal from Indonesia during the month, jumping 29% on the year but in line with the previous month’s import levels.

Leia Toovey has a B.Sc. in geology from Simon Fraser University, and her degree had a focus on resource economics. Out of school, she started working in the booming mining industry of Vancouver, Canada, covering junior mining stocks and commodities including potash, copper, nickel, oil and gold. Then she moved to New York and worked as a commodities analyst covering a breadth of commodities, from the Baltic Dry Index through the softs. As a geologist she has a greater understanding of the exploration and extraction side of commodities, and how changes in technology and the depletion of resources impact pricing. At Economic Calendar she covers a variety of commodities, providing daily technical and fundamental analysis and assessing major market developments.