How will China's environmental protection policies affect thermal coal demand this winter?
Prices of thermal coal futures for January 2018 delivery in China are currently around RMB 100/t lower than spot prices. Considering supply is already tight, what is driving such a bearish near-term outlook? The answer lies in the effect China's various efforts to reduce pollution are having on the fundamentals, with market participants forecasting that over 100 Mt of coal demand will be cut during the winter heating season. However, Wood Mackenzie believes this figure is too ambitious and, as such, prices at the start of next year will not drop as far as the market expects. In this Insight, we highlight how the various policies are influencing thermal coal demand, estimate how much demand will really be cut and identify the other factors that will drive prices this winter.