China Breathes New Life Into the Coal Market (Bloomberg News – August 12, 2016)

Coal’s making a comeback after five years in the doldrums.

Power-station coal has surged this year, outpacing both oil and natural gas, as China’s efforts to reduce mining capacity boosts domestic prices and increases the appetite for seaborne imports, according to UBS Group AG and Australia & New Zealand Banking Group Ltd. The steel-making variety of coal is at the highest in more than a year, further supported by robust Chinese steel output.

Coal’s decline began in 2011 amid a global glut, then deepened as China slowed overseas purchases. Efforts this year to reduce the country’s output have boosted domestic thermal coal prices and spurred a revival in imports after they slumped in February to the lowest since 2011.

While shipments eased in July amid a wider drop in energy imports, they remained above 21 million tons for a second month and near the most since December 2014.

“There’s been a positive impact on the seaborne thermal market from the continuing closure of capacity in China,” said Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “Prices will probably remain around these levels, or even push higher, if imports continue to climb. The macro data is stabilizing, which does suggest that industrial demand for coal-fired power should hold up relatively well.”

Capacity Cuts

Newcastle thermal coal, an Asian benchmark, is up more than 30 percent this year and reached as high as $67.07 a metric ton in the week ended Aug. 5, according to data from Globalcoal. Prices are on track to snap a five-year streak of declines.

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