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China Bid to Curb Coal Output Seen Lifting Prices by 10%

Cutting production at the largest mining companies in China is on track to do what government officials are hoping: boost coal prices and help shore up the struggling industry.
That’s the conclusion of ICIS-C1 Energy, a consulting company in Shanghai, which predicts coal prices may advance 10 percent in the fourth quarter because of the output reduction and government plans to ban shipments of lower-quality cargoes from overseas.
China, both the world’s largest market for coal and worst carbon-dioxide emitter, is seeking to reduce output at the nation’s 14 largest producers after prices slumped amid efforts to moderate economic growth and fight pollution. More than 70 percent of miners are unprofitable and half are delaying or cutting wage payments, according to the China Coal Industry Association.
“Coal prices have started to show a recovery since the moment the government decided to step in,” Shi Yan, a Shanghai-based analyst at UOB-Kay Hian Ltd., said by phone on Sept. 10. “The recovery may accelerate going forward.”
The rules — which target 10 percent of output at the largest producers or the equivalent of about 63 percent of the nation’s annual imports — will take 190 million metric tons of supply, or about 5 percent of this year’s production, off the market in 2014, according to UOB-Kay Hian, a Singapore-based brokerage.
Government Action
“The government is worried about the current low coal price,” Deng Shun, an analyst at ICIS-C1, said by phone from Guangzhou on Aug. 20. “They’re concerned that this could cause a series of social problems such as workers’ salaries not being paid and less spending on safety measures.”
The spot price at the port of Qinhuangdao slid 52 percent from a peak six years ago to 470-480 yuan a ton in the week ended Aug. 3, the lowest level since September 2007, according to the China Coal Transport and Distribution Association, or CCTD. It has remained unchanged since then.
Qinhuangdao spot coal prices have probably bottomed and are expected to rebound to 520-530 yuan a ton in the fourth quarter, forecasts both ICIS-C1 and the CCTD.
The National Development and Reform Commission, China’s top economic policy planning body, said on Aug. 21 that it would levy penalties on those flouting production rules. Mining companies face fines of 500,000 yuan to 2 million yuan if they exceed output limits, according to a statement on its website. They may also be suspended.
The government may “soon” publish regulations banning the import of coal with high-ash and high-sulfur content, cutting purchases by 80 million tons, or about 25 percent of annual supplies from overseas, the CCTD said in a statement on Aug. 26.
Curbing Pollution