The coal mining industry was slow in 2016 to increase production in response to demand stimulation. The slow response caused a substantial increase in seaborne prices. Quickly boosting output is undoubtedly difficult following three years of declining prices during which miners slashed costs to conserve cash. Should producers rehire laid off-staff, redeploy equipment and restart mines that were recently mothballed or idled? They face the difficulty of assessing the duration of the current price spike.
Many factors are at play, but China’s de-capacity policy is clearly at the centre of the issue. As events unfolded, there was a timely shift of the marginal cost supply by portfolio players, an increase in spot-price-driven shipments over previous years, miner inflexibility owing to years of cost-cutting and a producer reticence to expand without clear understanding of the price future. Increasing flexibility to handle price changes is a skill worthy of producer development.
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Insight | Oct 2016
Happy days in coal country: back in the money!
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