Ex­perts say black gold prices will fall on sup­ply boost

China Daily (Hong Kong) - - BUSINESS - By MENG FANBIN

Coal prices are pre­dicted to fall slightly in the sec­ond half of this year, thanks to gov­ern­ment ef­forts to en­sure ad­e­quate sup­plies, in­dus­try in­sid­ers said.

The Bo­hai-Rim Steam-Coal Price In­dex or BSPI, which tracks do­mes­tic ther­mal coal spot prices at six ma­jor ports in north­ern China, hit 580 yuan ($85.26) per ton on Tues­day, up from 577 yuan a week ago.

The high coal prices are the re­sult of a suc­cess­ful ca­pac­ity re­duc­tion as part of the coun­try’s sup­ply-side struc­tural re­form.

In ad­di­tion, the surge in steel pro­duc­tion last year also drove up coal prices, said Mi Pengqi, an an­a­lyst at JLC Net­work Tech­nol­ogy Co.

The lat­est coal price up­trend may end be­cause of the fall in daily coal con­sump­tion of ther­mal power plants.

Also, con­sumers also in­tend to scale down their pur­chases, ac­cord­ing to a re­port in China Se­cu­ri­ties Jour­nal that quoted mar­ket in­sid­ers.

“The cen­tral gov­ern­ment has eased the pol­icy on (coal) ca­pac­ity re­duc­tion due to the trou­bled sit­u­a­tion re­lated to coal and elec­tric­ity,” said Zhang Min, an an­a­lyst from Sub­lime China In­for­ma­tion Group.

He was re­fer­ring to the con­tin­u­ous rise in ther­mal coal prices, which in turn were in­flat­ing costs, and squeez­ing prof­its, of the al­ready trou­bled ther­mal power plants since April last year.

About 65 per­cent of elec­tric­ity in China is gen­er­ated by ther­mal power plants.

Ac­cord­ing to Na­tional Bu­reau of Sta­tis­tics, China’s coal out­put rose 12 per­cent to 300 mil­lion tons in May, al­most 10 per­cent in April and nearly 2 per­cent in March.

That is a re­ver­sal of the trend last year when the coun­try’s coal out­put fell 7.9 per­cent, the big­gest an­nual drop since 1981, ac­cord­ing to BP Sta­tis­ti­cal Re­view of World En­ergy 2017.

China elim­i­nated more than 65 mil­lion tons of steel pro­duc­tion ca­pac­ity and over 290 mil­lion tons of coal ca­pac­ity last year, beat­ing an­nual gov­ern­ment tar­gets.

En­vi­ron­ment and safety in­spec­tions led to the clo­sure of many small coal mines. The new reg­u­la­tion, low­er­ing work days in a year to 276, also re­duced the pro­duc­tion of large coal min­ing com­pa­nies, said Mi.

How­ever, the old rule al­low­ing 330 work days in a year has been re­stored by many prov­inces like Shanxi and Shaanxi since April, lead­ing to a rise in out­put.

Also, the Na­tional De­vel­op­ment and Re­form Com­mis­sion, the coun­try’s top eco­nomic plan­ner, said in late April it would al­low coal out­put to in­crease to make the fuel cheaper, in or­der to help strug- gling power plants.

If Chi­nese coal prices stay high, how­ever, im­porters in other coun­tries may look for al­ter­na­tive sup­pli­ers as over­sup­ply marks the cur­rent global coal mar­ket, Mi said. “That will also help lower coal prices.”

Since the end of last month, the daily coal con­sump­tion of ther­mal power plants has de­clined a bit. The year-on-year growth rate has also slowed sig­nif­i­cantly, the China Se­cu­ri­ties Jour­nal re­ported.

Any slight de­cline in coal prices would squeeze prof­its of Chi­nese coal com­pa­nies but won’t cause huge losses, Zhang said.

Although coal prices were volatile in the first half of the year, they were still high, en­sur­ing prof­its of most coal com­pa­nies stayed at high lev­els.

coal pro­duc­tion ca­pac­ity that China elim­i­nated last year

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