[av_heading heading=’Coal Prices Jump on Speculation China Will Increase Coal Mining Restrictions’ tag=’h3′ style=’blockquote modern-quote’ size=” subheading_active=’subheading_below’ subheading_size=’15’ padding=’1′ color=” custom_font=”][/av_heading]
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Chinese thermal coal prices jumped on Tuesday as traders looked past the end of the peak demand season and instead focused on supply side factors.
Coal futures rallied in 2016 as China cracked down on coal mining; however, the commodity’s rapid price response forced the government into relaxing its regulations. Prices retreated but now the commodity is gaining ground on renewed speculation that China will implement new output cuts.
On Tuesday, the most-active coal futures for May delivery on the Zhengzhou Commodity Exchange jumped 3% to 619 yuan per ton, their highest since the contract launched in May 2015. Coal from Australia’s Newcastle port jumped 9% to $78.70 per ton on Monday.
The rally in coal prices came after on Monday, the National Development and Reform Commission (NDRC) met with regional government officials to discuss coal output cuts. The output cuts are being discussed as the country wants to remove excess coal capacity and also reduce its pollution. Last year, China’s crackdown on coal mining without a parallel drop in demand sent both thermal and metallurgical prices soaring. While China’s demand for coal is expected to drop over the longer term, the country may need to ease in output restrictions to prevent prices from soaring. High metallurgical prices caused steel prices to protest China’s production restrictions in 2016.
Last week, China’s government said it would avoid radical regulations on its coal industry but still the meeting has raised speculation that the country is planning to do something to reduce coal production. At the same time, the country’s coal production is also declining. According to China’s National Statistics Bureau, coal output dropped in the first two months of 2017, while power output, mainly fuelled by coal, jumped 6.5%. To note, inventories at Qinhuangdao are currently around 4.6 million tons, down from 7.33 million at the start of the year. A decline in thermal coal inventories at the beginning of the year, in the peak of winter, is common. On the other hand, metallurgical coal inventories are usually steady at the beginning of the year due to reduced demand.
Source – economiccalendar.com
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