China, the world's biggest producer and consumer of coal, is considering reinstating output restrictions to avoid the return of a glut after easing limits during winter.
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, according to people with knowledge of matter, who asked not to be identified because the information isn't public. The NDRC, the nation's top planner, didn't respond to a faxed request for comment and nobody answered calls to its press office on Wednesday.
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China's coal revival
At the centre of China's fluctuating coal prices is Yanzhou Coal Mining's Dongtan mine. The Financial Review's Lisa Murray was lucky enough to be given a tour.
Mining restrictions last year by President Xi Jinping's government aimed at easing a glut resulted in a 9.4 per cent drop in production and a surge in prices, snapping at least four years of declines across Asia. To cool the market, officials reversed some measures to boost production ahead of winter. A resumption of restrictions now may support prices again if demand growth is sustained, according to Argonaut Securities (Asia).
"The policy will effectively set a floor for coal prices," said Helen Lau, a Hong Kong-based analyst at Argonaut. "Reinforcing the 276-working-day restriction, even partially, will have an immediate impact to supply recovery and market sentiment."
The NDRC is considering reinstating the production limits for six months, with some mines and areas possibly excluded, said the people. No decision had been made yet, they said.
In late trading in London, shares in BHP Billiton gained 3.2 per cent. Shares in Rio Tinto slipped 0.6 per cent, Glencore fell 0.7 per cent.
Thermal coal futures traded on the Zhengzhou Commodity Exchange reversed earlier losses and added 0.7 per cent to close at 535.2 yuan a tonne. Coking coal futures in Dalian fell 0.9 per cent to settle at 1214 yuan a tonne after earlier rising as much as 0.5 per cent.
Teck see lower realised prices
"Sellers of seaborne coking coal are banking on the recent drop in prices to encourage more buyers to make spot purchases and stem the decline," market participants told Metal Bulletin.
Coking coal prices, which have been trending downwards since December, saw the pace of their decline accelerate this week. Metal Bulletin's cfr China premium hard coking coal index fell $US1.66 to $US159.23 per tonne on Wednesday, its lowest since early September. "The ample supply is affecting market sentiment and demand is really just moderate at best," a seller source told MB.
Canada's Teck Resources, the largest producer of coking coal in North America, said overnight that customers appear to be drawing down inventories following a fourth-quarter buying binge, sparked by global supply worries that were ultimately unfounded.
Teck forecast steelmaking coal sales of approximately 6 million tonnes in the first quarter, down from 7.3 million tonnes in the fourth quarter. It has reached agreements with the majority of its coal customers for the first quarter, based on a quarterly benchmark price of $US285 per tonne.
Teck expects an average realised price in the first quarter of about 70 per cent to 75 per cent of the $US285 per tonne benchmark. Teck's fourth-quarter realised price was $US207 a tonne.
The company forecast 2017 steelmaking coal production of 27 million to 28 million tonnes, but said output may be adjusted depending on demand.
NDRC seeks to avert renewed glut
"The NDRC probably expects a decline in coal demand as the winter heating season ends and so they are attempting to limit supplies so a new glut doesn't emerge and knock down prices," said Laban Yu, head of Asia oil and gas equities at Jefferies Group in Hong Kong, "The policy is likely flexible and NDRC may change it again according to supply and demand."
The NDRC wants coal prices in a range of 500 yuan to 570 yuan a tonne, according to Yu.
Spot coal with an energy value of 5500 kilocalories per kilogram at the port of Qinhuangdao, China's benchmark grade, was at 605 yuan a tonne as of February 13, down almost 14 per cent since the start of November, according to data from the China Coal Transport and Distribution Association. Prices rose 73 per cent in 2016.
Separately China rejected a shipment of coal from North Korea a day after the country testfired a ballistic missile in violation of international sanctions, South Korea's Yonhap News Agency reported.
A load of around 16,295 tonnes of North Korean coal, estimated to be worth around $US1 million, was not allowed to be unloaded at a seaport in Wenzhou in China's Zhejiang province on Monday, and will be returned to the North Korean western port of Nampo, the agency said citing unidentified sources.
The rejection was due to a higher-than-permissible level of mercury contained in the coal, the agency said.
The move came a day after Pyongyang's test of the intermediate-range ballistic missile on Sunday, its first direct challenge to the international community since US President Donald Trump took office on January 20.
China imported 22.5 million tonnes of coal from North Korea last year