Coal Price Expected to Fall up to Late-October 2017
Coal supplies in China are estimated to show a 5.8 million ton surplus in the September-October 2017 period in line with sliding coal demand in the world's second-largest economy. Therefore, coal prices should come under pressure starting from mid-August up to late October 2017. Coal demand in China will ease as local weather conditions turn normal. Meanwhile, local coal supplies are seen growing as miners want to take advantage of the higher coal price.
A research note from Huatai Financial Holdings Ltd says China's expected coal surplus in September-October 2017 is in stark contrast to the coal deficit that existed in China in the July-August 2017 period when authorities were stricter in terms of limiting local coal output.
Two factors that will lead to the coal surplus in China next month are (1) coal rising production in Central Mongolia, and (2) Chinese authorities' approval to raise production capacity at existing mines.
China's mining policies are basically what determine the direction of the global coal prices. When China limits domestic coal production, hence opening room for imports from abroad, then the coal price rises. However, when China boosts domestic coal production (hence limiting imports from abroad), the price falls. Last year China started to curtail mining output in an effort to boost coal prices as coal miners struggled to repay loan obligations (reflected by the rising non-performing loan ratio).
However, towards the end of 2017 coal prices are expected to rise again after October 2017 as coal demand tends to rise when approaching the winter. Huatai Financial Holdings Ltd also expects Chinese policymakers to limit domestic coal production again toward the year-end, especially in Central Mongolia and Shenmu. As such, the expected fall of the coal price in the September-October 2017 period would be only of temporary nature.
Meanwhile, a research note released by JP Morgan, says the coal price has been rising significantly since late July 2017 on the back of the following factors: (1) coal production in Indonesia has been undermined by heavy rainfall, (2) coal production in Australia has been disturbed by strikes, (3) higher temperatures in the northern hemisphere, and (4) improving economic data from China suggest improving prospects for the coal price.
Projection Newcastle Coal:
| Q4 2016 |
Q1 2017 |
Q2 2017 |
Q3 2017 |
Q4 2017 |
|
| Price (USD/ton) |
75.8 | 77.5 | 75.3 | 90.5 | 87.7 |
Source: Huatai Financial Holdings Ltd & Bisnis Indonesia
Coal Supply & Demand in China:
| Jan 2017 |
Feb 2017 |
Mar 2017 |
Apr 2017 |
May 2017 |
Jun 2017 |
Jul 2017 |
Aug 2017 |
Sep 2017 |
|
| Production (in million ton) |
231 | 217 | 266 | 264 | 263 | 269 | 260 | 259 | 262 |
| Demand (in million ton) |
274 | 233 | 276 | 247 | 245 | 257 | 276 | 281 | 256 |
Source: Huatai Financial Holdings Ltd & Bisnis Indonesia