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6 Pages

China's coal policies rescue the thermal coal market


China's coal policies rescue the thermal coal market

Report summary

China's coal production restrictions have turned coal markets on their head this year. The Chinese government is trying to strike a balance between restoring its crippled coal sector to some measure of health while maintaining the push to reduce coal sector overcapacity without damaging downstream users such as the electricity utilities. Our analysis suggests a RMB515/tonne price strikes a reasonable balance between the coal and utility sectors and would be viewed as an acceptable price level by the Chinese government. We think this is good news for the seaborne market. We calculate this price level equates to a benchmark Newcastle thermal coal price of US$73/tonne basis 6000 nar. While well below current spot and contract prices, at this price level 98% of the seaborne market is cash positive.

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Description

This Coal Insight report highlights the key issues surrounding this topic, and draws out the implications for those involved.

Participants, suppliers and advisors can use it to look at the trends, risks and issues within the coal industry and gain an alternative point of view when making decisions.

Wood Mackenzie is the only coal industry service provider that offers a market outlook integrated with other sector analyses, including macroeconomics, coal supply, steel markets and gas and power markets.

Our coal analysts are based in the markets they analyse. They work with objective, proprietary data to help you maximise your current and future decision making. From market dynamics to trade patterns, we give you confidence in your strategic planning.

  • Overview
  • Coal industry losses have been significant
  • The Chinese government responded by enforcing capacity cuts
  • What thermal coal price is the government comfortable with?
  • Break-even analysis
  • RMB515/tonne represents a reasonable balance between producers and utilities
  • This price level is good news for the seaborne market

In this report there are 4 tables or charts, including:

  • Overview
  • Coal industry losses have been significant
    • China's coal sector costs, revenues and cash flows 2011-2016
  • The Chinese government responded by enforcing capacity cuts
  • What thermal coal price is the government comfortable with?
  • Break-even analysis
    • Regional benchmark break-even prices
  • RMB515/tonne represents a reasonable balance between producers and utilities
  • This price level is good news for the seaborne market
    • Chinese domestic to international price arbitrage
    • Seaborne export thermal coal margin curve 2016 at US$73/tonne basis 6000 nar FOB Newcastle
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