China Said to Mull Resuming Coal Output Curbs for Six Months
NDRC is said to consider reinstating restrictions from March
(Bloomberg) -- China, the world’s biggest producer and consumer of coal, is considering reinstating output restrictions to avoid the return of a glut after easing limits during winter. Shares in the country’s coal miners jumped along with futures prices.
The National Development and Reform Commission may resume mining curbs that cap output to an equivalent of 276 days of capacity after heating season ends in mid-March, according to people with knowledge of matter, 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.
Mining restrictions last year by President Xi Jinping’s government aimed at easing a glut resulted in a 9.4 percent drop in production and a surge in prices, snapping at least four years of declines across Asia. To cool the market, officials reversed some measures to boost production ahead of winter. 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 restriction, even partially, will have an immediate impact to supply recovery and market sentiment.”
The NDRC is considering reinstating the production limits for 6 months, with some mines and areas possibly excluded, said the people. No decision had been made yet, they said.
China Shenhua Energy Co., the country’s largest coal producer, advanced 3.1 percent to HK$16.72 at the close in Hong Kong. China Coal Energy Ltd., the nation’s second-biggest producer, climbed 3.7 percent to HK$4.25. The shares of both companies rose to their highest since Nov. 14. The benchmark Hang Seng index advanced 1.2 percent.
Coal Futures
Thermal coal futures traded on the Zhengzhou Commodity Exchange added 0.7 percent to 535.20 yuan a ton at the close. Coking coal futures in Dalian fell 0.9 percent to 1,214 yuan a ton after earlier rising 0.5 percent.
“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 wants coal prices in a range of 500 yuan to 570 yuan a ton, according to Yu.
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.
To contact Bloomberg News staff for this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net, Sarah Chen in Beijing at schen514@bloomberg.net, Steven Yang in Beijing at kyang74@bloomberg.net.
To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Abhay Singh
With assistance from Aibing Guo, Sarah Chen, Steven Yang