Coal news and updates

In the final days of 2016 China unveiled its latest plan for its coal industry. After the dramatic surge in thermal and metallurgical coal prices last year, it’s probably good news for the Australian industry.

 

The qualification relates, as it does to many aspects of global trade and markets this year, to the trade policies adopted by the Trump administration in the US and, in particular, their impact on China’s exports and on the value of the US dollar.

 

The extent to which Trump’s policies impact China’s steel industry — both its export volumes and the cost of the raw materials for steelmaking — could have a big impact on its demand for metallurgical coal.

 

Broadly, however, the latest industry plan is favourable for coal exporters already benefiting from the unexpected rebound in prices last year when production limits imposed by the Chinese authorities saw prices for both thermal and metallurgical coal soar.

 

While they have subsequently slipped back from their 2016 peaks as China relaxed some of the production limits — the 276 working-day limit for China’s coal mines was lifted to 330 days — coal prices remain at levels that bear greater resemblance to the commodity boom period than they do to the depressed levels at which coal was trading at the start of last year.

 

The emphasis in the 13th five-year plan that China released on December 30 is on curbing pollution and improving air quality as much as it is on industry restructuring and reform, although the two objectives do go hand-in-hand.

 

The ambition for the plan isn’t primarily to reduce coal production and consumption, although the rate of growth in coal consumption is expected to slow, but to reduce overcapacity and inefficiency and displace “dirty’’ coal with cleaner supply to improve air and water quality.

 

The policymakers are targeting 3.9 billion tonnes of coal production in 2020, which compares with the 3.75 billion tonnes produced in 2015. They expect consumption to rise from 3.96 billion tonnes in 2015 to 4.1 billion tonnes.

 

To drive out excess and low-quality capacity, the National Development and Reform Commission wants to drive 800 million tonnes a year of inefficient production from the industry by 2020 while adding 500 million tonnes of what it describes as “advanced’’ capacity.

 

In effect, it wants to consolidate production by shrinking the number of smaller and low-quality coal producers and encouraging more production from the big coal miners. It will also encourage mergers at the big end of the sector.

 

The NDRC has said there will be no new coal mines approved in China until after 2018, at which point only new projects with a capacity to produce at least 1.2 million tonnes a year may get approval. It is aiming to eventually concentrate about 95 per cent of China’s coal output in mines with at least that level of production.

 

For high-quality thermal coal producers outside China the restructuring of its coal sector and the planned exit of the smaller mines offers the prospect of prices remaining well above last year’s lows for longer.

SOurce: The Australian.Com