China Coal Miners to Coordinate Output Amid Rally, Reports Say

Updated on
  • Mining companies’ officials met in Beijing to discuss prices
  • China benchmark coal prices have surged more than 30% in 2016

China coal miners have agreed to coordinate production to help stabilize prices, which have rallied this year amid efforts by the government to cut the nation’s overcapacity, according to reports from Shanghai Securities News and Caijing.

Major miners in world’s largest consumer and producer of the fuel signed an agreement on Thursday with the China National Coal Association to manage supply, according to the reports. The deal will see miners increase output when the market is tight and cut production when there is oversupply. Spot metallurgical prices have doubled this year, while thermal coal prices have risen 36 percent.

Coal is rebounding after five years of declines because of a reduction in Chinese supply and a demand boost from robust steel output. China’s benchmark coal price at Qinhuangdao, its biggest port for delivering the fuel, has risen 40 percent since the beginning of the year to an average 505 yuan ($76) a ton in the week ended Sept. 5, according to data compiled by Bloomberg. The country’s government warned in July that prices shouldn’t rise too much, too fast.

“China’s policy isn’t designed to give a free kick to seaborne producers,” said Daniel Morgan, an analyst with UBS Group AG in Sydney. “They have constrained output and forced prices up too high and there might be some relaxation of this policy. We just question the sustainability and the magnitude of the price rise.”

The National Development and Reform Commission, China’s top economic planner, called officials from the country’s biggest coal miners including Shenhua Group Corp. and China National Coal Group Corp. for a meeting in Beijing on Thursday to address the “excessive rebound” in prices, according to the reports. The National Coal Association will coordinate with miners to adjust production when necessary. The miners should manage their production within the 276 working days requirement set earlier, the reports said.

“The fact that the 276 working-day rule remains intact signals that the government measures to control prices is weaker than expected,” Deng Shun, an analyst with ICIS China, said by phone. “We think it’ll be quite difficult to implement the agreement as there are many companies involved.”

Two calls to the China National Coal Association and Shenhua Group weren’t answered. China National Coal Group couldn’t immediately comment on the reports.


“For companies like Shenhua, it should be rather easy to quickly drive up output in a short period of time as many of their capacities have been idle as a result of China’s coal-control policies,” said Laban Yu, head of Asia oil and gas equities at Jefferies Group LLC in Hong Kong. “Allowing the biggest ones to restore some of their capacities could also help prevent a sudden flood of supply to the market as those companies prove to be the ones with strong self-discipline.”

Prices will probably fall in the fourth quarter as the Chinese government eases production controls and inventories climb, according to a Sept. 6 report from Macquarie Group Ltd.

Coal output has declined 10 percent during the first seven months of the year, according to the country’s statistics office. That has boosted imports, which in August were the highest since December 2014, according to customs data Thursday.

— With assistance by Ben Sharples, Guo Aibing, and Jing Yang

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