• 1H17 China Coking Coal Market Analysis and 2017 Forecast

  • Cycle of publication: Semi-annual

    Date of completion: Sep , 2017

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In the first half of 2017, China had kept resolving excess coal capacity. After the annual 276-workday policy was put aside, the national coal supply began to recover, and the growth of imports was more than expected; while domestic coal demand was increasing slightly in the meantime. The domestic coking coal market featured a weak balance (which used to be tight balance) along with recovering production and mounting imports. Consequently, the prices remained at downside while maintaining stable on the whole.

As entering the second half of 2017, safety production has become a key note for China coal industry since the convening of the 19thNational People's Congress is just around the corner. Both market players and observers expressed deep concerns for China coal market trend and policy orientation before the end of this year.


Part 1: 2017H1 China Coking Coal Market Review

1   Demand Side: economic growth turning for the better to drive up increase of steel demand

     1.1  Macro-economic background (GDP, FAI, IVA, PMI, investment into real estate and infrastructure showing upward signs)

     1.2  Crude steel output hit a new high amid elimination of excess capacity and mounting profit from steel-making. Increasing demand drove up growth of coke production

     1.3  Declining steel exports (due to continuously high domestic prices and trade frictions ) weighed on coke exports

     1.4  Continuously falling steel stock coexisting with mounting coke stock

     1.5  Steel and coke prices were going up amid fluctuation due to recovering demand, implementation of decapacity policies and environment protection inspections

     1.6  National coking coal consumption

2   Supply Side: coalmines resumed production to recover coal supply

     2.1  Implementation of coal industry supply-side reform (to balance coal supply and demand by resolving overcapacity); implementation effect in major provinces

           2.2  The coalmines under construction were strictly abiding by the capacity reducing replacement policy; assessment of such policy

     2.3  Coking coal capacity split by mine state (operating, newly-built & expanding, closed, suspending construction/operation)

     2.4  Coking coal output failing to level off 2016-end although coalmines have resumed normal production

3   Supply-demand Pattern: tight balance turning into weak balance

     3.1  Restocking from end users slowing down. Tianjin Port banning coal inflow born by truck, which weakened coal trucking demand and unleashed transport capacity in 2017H1

     3.2  Amid recovering coking coal supply, coal miners and end users were digesting coal stock actively, which shifted domestic supply-demand pattern from tight balance to weak balance

     3.3  Global coking coal prices started declining since 2016-end, which fueled import interest of domestic buyers, so China coking coal imports showed a more-than-expected growth in 2017H1 (the inflow of both seaborne coal and Mongolian increased notably)

     3.4  Export volume increased remarkably but remained low as a whole, with Japan and S. Korea remaining as major destinations

4   Price Trend: being adjusted down from the high level at 2016-end

     4.1  Domestic coking coal prices were initially adjusted down, esp. during holidays, then bouncing back since March when the prices for some minor coal types went up

     4.2  Private miners saw their coal prices rise or fall ahead of key SOEs

     4.3  Key SOEs giving preference to long-term contract-based coal supply to stabilize the prices for premium coking coal

     4.4  China's decreasing imports pulled down global coking coal prices. Global prices were rising or falling sharply after Queensland was swept by Cyclone Debbie in April

5   Production Cost: increasing cost under impact from coal industry decapacity


Part 2: 2017H2 China Coking Coal Market Outlook

6   Demand Side: to fall back slightly

     6.1  Macro-economic background: real estate sector may not be robust as before under restrictions upon house purchase and mortgage, yet infrastructure investment may play a vital role to sustain economic growth

     6.2  Domestic iron & steel production may be interrupted by successive inspections, .e.g., safety production, environment protection inspection

     6.3  Output of pig iron, crude steel and coke to register a slight decrease

     6.4  Forecast of national coking coal demand (2017H2 and entire 2017)

7   Supply Side: domestic market to remain tight balance with limited increase in supply

     7.1  Coalmines with advanced capacity shall be placed under capacity reassessment. The added and reassessed capacity shall be enough to guarantee normal coal supply

     7.2  Coal production to be affected by major events, safety and environment protection inspections (all coalmines are asked to accept safety inspections to pave way for the coming up 19thNational People's Congress; the accident in Shanxi-based Yixing Mine interrupted normal coking coal production of the entire province)

     7.3  Coal stocks to remain low at coalmines, transfer ports and end users

     7.4  Coking coal capacity split by mine state (operating, newly-built & expanding, closed, suspending construction/operation)

     7.5  Forecast of national coking coal supply(2017H2 and entire 2017)

8   Transport Pattern: decreasing railing cost, loose trucking capacity

     8.1  China Railway Corporation decided to cancel part of the railing cost items to reduce the social logistics costs, effective since Aug 1

     8.2  Hebei and Shandong prohibit ports to take in coal inflow borne by truck, which will further loosen trucking capacity and cut trucking cost 

9   Import and Export Volume: 2017 total exports to increase notably

     9.1  Imports to maintain the remain similar level since import cargo still boasts certain price advantage

     9.2  Hebei and Shandong ports prohibiting coal trucking from end of Sept. will have negative impact on coking coal imports

     9.3  Exports to decline in 2017H2, yet the year's total exports to increase greatly from 2016

10  Production Cost: to keep increasing

11  Price Forecast: 2017H2 price to recover slightly, with the year's average price above 2016

     11.1  Coking coal prices in 2017H2 tend to climb up from the low level at midyear due to slowly increasing demand, limited growth of supply and downstream restocking

     11.2  Coking coal prices tend to be propped up by continuous implementation of  decapacity policy, major events, intensified safety and environment protection inspections; yet not as high at the start of 2017

     11.3  Price forecast based on key influencing factors