Coal surge likely to ebb

China’s move to loosen re­stric­tions that trig­gered the rise in the price of coal in the first place, will prob­a­bly see the cost of the com­mod­ity fall

African Independent - - BUSINESS - HEN­NING GLOYSTEIN

AWAVE that has lifted some coal prices to more than dou­ble in the past six months may be about to ebb away, turned back by China’s move to loosen the re­stric­tions on do­mes­tic min­ing that first trig­gered the fuel’s rise.

Aus­tralian New­cas­tle cargo prices, Asia’s bench­mark, have fallen 7.8 per­cent this month al­ready, slip­ping to $105.75 per met­ric ton from al­most $115 at the start of the month, their high­est since 2012.

Last week, China’s state plan­ner moved to ease pro­duc­tion curbs ahead of peak win­ter de­mand for heat­ing fu­els, al­low­ing mines 54 more work­ing days a year.

It was a move by Bei­jing ear­lier this year to cap do­mes­tic min­ing to cut ex­cess ca­pac­ity that had trig­gered coal’s rise as util­i­ties in the re­gion, es­pe­cially in South Korea and Ja­pan, be­gan to stock up.

“The strong pric­ing re­bound since early 2016 is un­likely to be sus­tained as the Chi­nese gov­ern­ment re­laxes its work­ing­day cur­tail­ment poli­cies to man­age prices,” Fitch Rat­ings said in a note to clients.

“Go­ing for­ward, much will now de­pend on the weather out­look in north­ern Asia, where the peak de­mand win­ter sea­son has just started. Over­all, I think this will be a bumpy win­ter price ride,” said a trader with a com­mod­ity ship­per.

The win­ter out­look for China and South Korea is for un­usu­ally cold weather into De­cem­ber, although the out­look for Ja­pan is more within the sea­sonal norms, me­te­o­ro­log­i­cal data in Thom­son Reuters Eikon showed.

“As China said it would in­crease pro­duc­tion, prices are down. Be­sides that, de­mand has also de­clined be­cause most (util­i­ties) have pro­cured their win­ter sup­plies,” said a source with a South Korean util­ity.

Asia’s coal mar­ket rally has been un­prece­dented and gave min­ers an un­ex­pected boon in a sec­tor that has been oth­er­wise dogged by years of slump and de­cline.

An­a­lysts said the re­cent spike was some­what overblown, and a down­ward cor­rec­tion there­fore nec­es­sary.

But they said prices were ulikely to fall back to pre-rally lev­els.

“China’s do­mes­tic bench­mark ther­mal coal price is sus­tain­able at 515 yuan per met­ric ton in the medium term, and equates to a bench­mark New­cas­tle ther­mal coal price of $73 per met­ric ton FOB (free on board),” en­ergy con­sul­tancy Wood Macken­zie said in a study pub­lished last week.

A price of slightly above $70 a met­ric ton for prompt coal car­goes would be more in line with fi­nan­cial fu­tures.

Bench­mark Euro­pean API2 2017 coal fu­tures TRAPI2Yc1 have fallen over 10 per­cent this month, to a last close of $69.70 per met­ric ton, its low­est since late last month.

Europe’s API2 also more than dou­bled in re­cent months, pushed by nu­clear power out­ages and rel­a­tively low re­new­able out­put, but a bal­anced sup­ply and de­mand out­look has helped rein-in prices there too.

A coal price in the $70s per met­ric ton is some­thing min­ers would prob­a­bly be able to live with, as most have pro­duc­tion costs be­low that level, in­dus­try data shows.

Rory Sim­ing­ton, prin­ci­pal min­ing and met­als an­a­lyst at Wood Macken­zie, said China’s pol­i­cy­mak­ers would prob­a­bly sup­port prices above re­cent lows.

This would “pro­vide a much more pos­i­tive out­look for a sec­tor that has been un­der much pres­sure of late”, Sim­ing­ton said.

Glen­core, the world’s big­gest ther­mal coal ex­porter, which laboured through al­most half a decade of fall­ing prices prior to the re­cent spike, said it had an av­er­age pro­duc­tion cost of about $37 a met­ric ton for its sup­plies. – Reuters

PIC­TURE: EPA

EBBING: Bei­jing’s move to cap do­mes­tic min­ing to cut ex­cess ca­pac­ity trig­gered a rise in coal prices ear­lier this year. China’s state plan­ner has now eased pro­duc­tion curbs ahead of peak win­ter de­mand for heat­ing fu­els.

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