(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia Dec 14 When it comes to
China's coal production, is it more important that output in
November recorded yet another decline year-on-year, or that it
rose for a second straight month?
The inclination is often to take the number and interpret it
in the way that best suits the narrative you wish to tell.
If you want to be bullish on coal prices, the 5.1 percent
decline in domestic coal production to 308.1 million tonnes in
November from the same month in 2015 would be your focus.
If you wanted to be bearish, the fact that coal production
rose 9 percent from October, the second straight monthly gain,
is more vital.
October's coal output was 281.85 million tonnes, meaning
that in volume terms China mined 26.25 million tonnes more in
This isn't insignificant, given that November imports were
26.97 million tonnes, a number that was the highest in 18
months. In other words, the increase in domestic output was
roughly the same as the volume of imports.
September's coal production was 277 million tonnes, only
slightly below August's 278 million tonnes.
Combining November's and October's output gives a total 590
million tonnes, or 35 million tonnes more than what was produced
in the prior two months.
The logical conclusion on China's domestic coal output is
that the trend is clearly higher, even if volumes have yet to
reach what they were in the same months a year ago.
This does go some way towards undermining the narrative that
Chinese miners are struggling to boost output, after being
encouraged to do so by the authorities in Beijing.
Coal output dropped sharply in the first half of this year
after Beijing ordered that mines could only operate for 276 days
a year, down from 330 previously.
This had the effect of tightening the domestic coal market,
leading to higher prices and a resurgence in imports, which
drove seaborne prices to their highest in 4-1/2 years.
SEABORNE PRICE CORRECTION
The weekly price of benchmark Australian thermal coal at
Newcastle port reached $109.69 a tonne in the week
to Nov. 11, while the front-month delivery price
peaked at $114.75 a tonne on Nov. 1, which at that time was a
gain of 120 percent since the end of 2015.
Both have since fallen, with the weekly index dropping 24
percent and the front-month delivery contract 22 percent to a
close of $89.65 a tonne on Tuesday.
It seems the market is responding to both the actual
increase in tonnes mined domestically in recent months, as well
as the expectation that China's coal producers will be able to
continue to restore output levels to something closer to what
they were in 2015.
Coal prices likely would have fallen further were it not for
a cold snap across North Asia in mid-November that boosted
demand for coal and other heating fuels.
The latest forecasts, though, indicate December and January
may be milder than average in China's major cities Beijing and
Shanghai, possibly resulting in lower coal demand for power
While imports are likely to remain robust in December, there
are now grounds for uncertainty as to how they will track in the
first half of 2017.
Shipping and port data compiled by Thomson Reuters Supply
Chain and Commodity Forecasts show that so far in December
seaborne coal imports by China are at 17.79 million tonnes.
This is a strong figure given that cargoes leaving Australia
and Indonesia in the next week or so will still have time to
reach a Chinese port by the end of the month.
Seaborne imports by China were 20.49 million tonnes in
November and 20.13 million in October, the two strongest months
this year, according to the vessel-tracking data.
This means December is at least likely to match the strength
of the previous two months, and it's possible that volumes will
remain robust in the early months of 2017.
However, seaborne thermal coal prices have little scope to
rally as they have to remain competitive with Chinese domestic
prices, which have declined in recent weeks.
Thermal coal at the Chinese port of Qinhuangdao
SH-QHA-TRMCOAL was last quoted at 600 yuan a tonne, equivalent
to about $87 a tonne.
The fact that this is cheaper than the current price at
Australia's Newcastle port, taking into account freight, duties
and other costs, indicates there is still scope for seaborne
prices to decline further.
(Editing by Tom Hogue)