Are coal prices set to rise?

Steps by miners to cut coking coal oversupply are having positive effects in the market, with metallurgical coal prices predicted to rise.

Analysts are predicting the benchmark contract for coal may rise in the second quarter as China dramatically slashes output and underperforming mines close, reducing general supply levels, according to Bloomberg.

BB&T Capital Markets coal analyst Mark Levin forecast a rise in the price on Friday, pointing to the ‘significant’ amount of Chinese coal slated to leave the market as the government shuts down mines.

“If the prices don’t rise, they’ll at least end up being no worse than flat,” he said.

Earlier this month an official at China’s human resources and social security ministry said the nation’s industries expect to cut around 1.8 million workers as it seeks to reduce capacity, and address the growing stockpiles in the country.

The latest plan to slash the country’s coal and steel workforce came only days after Chinese coal companies pushed the government to set a price floor for coal to protect against bankruptcy and stem job cuts.

Deng Shen, an analyst with ICIS China, predicted this government action, last week telling Bloomberg “the government probably won’t take any action on setting a price floor in the near future and instead focus on curbing the supply glut this year”.

Chinese premier Li has also previously forecast the swathe of job cuts, stating that production should be cut and costs relaxed to reduce oversupply, adding that coal miners could be transferred to other industries.

The country plans to reduce around 500 million tonnes of coal production over the next three to five year, mainly by closing more than 5000 coal mines around the nation and relocating around one million workers, setting aside 30 billion yuan ($6.5 billion) to aid relocation of the workers.

China also has also announced it will not approve any new coal mines for the next three years.

Closer to home, ship numbers have lowered at Newcastle Ports, highlighting a shrinking in output.

Levin pointed to the revitalised attractiveness of coal, citing Consol Energy’s sale of a coal mine in the US for US$420 million.

“They must think a big recovery is in the offing,” Levin said.

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