China’s Coal Prices to Rise 20% Amid Production Cuts, Citi Says

  • Four Chinese coal miners may increase prices in June: ICIS
  • China Coal raised to buy rating with HK$3.9 target price: Citi

China’s coal price may rise 20 percent by the end of this year as government steps to reduce production outpace a decline in demand, according to Citigroup Inc.

Power-station coal at the northeastern port city of Qinhuangdao may rise to 450 yuan ($69) a metric ton by December from 376 yuan now, bank analysts Jack Shang and Claire Jie Yuan said in a research note Tuesday. The government has asked domestic mines to cut output 16 percent and reduce their operating days to 276 from 330 annually, the report said.

“We believe the new regulation to reduce operating days is a measure taken in desperate times by the government to avoid too many bankruptcies in the coal industry,” the analysts wrote. “We expect the new regulation will be strictly enforced in the coming quarters.”

Raw coal production may fall by 9 percent this year, more than offsetting a 3.4 percent decline in demand, Citi said. The world’s largest coal producer is seeking to ease a glut of industrial capacity as it shifts toward consumer-led growth and tries to curb pollution. China plans to shut 500 million tons of nationwide production capacity, or about 9 percent of its total, within five years, the country’s state council said in February.

For a story looking at how China is tightening coal and steel finances, click here.

Citi raised China Coal Energy Co. to a buy rating from a sell recommendation with a target price of HK$3.90. The stock jumped as much as 11 percent in Hong Kong, the biggest gain in intraday trading since Jan. 22, to HK$3.37 and changed hands at HK$3.34 as of 1:41 p.m.

Separately, four Chinese coal companies including China Coal, China Shenhua Energy Co., Datong Coal Mine Group Co., and Inner Mongolia Yitai Coal Co. may raise retail coal prices by five to ten yuan per ton in June, said Lin Xiaotao, a Guangzhou-based analyst at researcher ICIS C1 Energy. The four companies didn’t respond to requests for comment.

China’s central bank is tightening financing for coal projects to help accelerate the government’s culling of industrial overcapacity, while encouraging companies to export products and projects overseas.

Shanxi province, which produces more coal than any other nation, aims to cut at least 100 million tons of production capacity by 2020 as overcapacity, falling prices and losses at miners hurt its economy, the provincial government said in a statement on its website last month.

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