China Mulls Resuming Coal Output Curbs for Six Months

Updated on
  • NDRC is said to consider reinstating restrictions from March
  • No decision made yet; some mines and areas may be excluded

China may not be done trying to manage coal prices.

The world’s biggest producer and consumer is considering reinstating output restrictions to avoid the return of a glut after it eased limits during winter, according to people with knowledge of the plan. The National Development and Reform Commission may resume curbs that cap output at an equivalent of 276 days of capacity after heating season ends in mid-March, said the people, 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 Wednesday.

China sent coal prices and mining shares on a tear last year after President Xi Jinping’s government imposed output restrictions aimed at easing an oversupply and supporting indebted miners. As production slumped, officials scrambled late in the year to boost output ahead of peak winter demand. The possible reinstatement of curbs comes as benchmark coal prices have fallen more than 10 percent from their recent peak in November.

“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 LLC in Hong Kong. “The policy is likely flexible and NDRC may change it again according to supply and demand.”

The NDRC is considering reinstating the production limits for six months, with some mines and areas possibly excluded, said the people. No decision has been made yet, they said.

Australian miner Whitehaven Coal Ltd. surged as much as 6.8 percent to A$2.97 in Sydney on Thursday and was at A$2.93 as of 10:47 a.m. local time. On Wednesday, China Shenhua Energy Co., China’s largest coal producer, advanced 3.1 percent to close at HK$16.72 in Hong Kong. China Coal Energy Ltd. climbed 3.7 percent to HK$4.25. Both companies rose to the highest since Nov. 14.

Price Targets

Thermal coal futures traded on the Zhengzhou Commodity Exchange added 0.7 percent to close at 535.20 yuan a ton. Coking coal futures in Dalian fell 0.9 percent to 1,214 yuan a ton after earlier rising 0.5 percent.

Spot coal with an energy value of 5,500 kilocalories per kilogram at the port of Qinhuangdao, China’s benchmark grade, was at 605 yuan a ton as of Feb. 13, down almost 14 percent since the start of November, according to data from the China Coal Transport and Distribution Association. Prices rose 73 percent in 2016.

The NDRC wants coal prices in a range of 500 yuan to 570 yuan a ton, according to Yu at Jefferies. China Shenhua sees a “reasonable range” for prices between 550 yuan and 660 yuan and warned prices may fall back to 370 yuan without government restrictions, according to a Nov. 1 report from Citigroup Inc.

A resumption of restrictions now may support prices again if demand growth is sustained, according to Argonaut Securities (Asia) Ltd.

“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 restrictions, even partially, will have an immediate impact to supply recovery and market sentiment.”

— With assistance by Aibing Guo, Sarah Chen, and Steven Yang

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