We got it wrong on coal.Falling inventories at Chinese ports might not be sufficient to set the market on fire, Gadfly argued in February. After prices instead rose about 42 percent, China’s economic planners last month ordered a ramp-up of production at local pits to squash the boom. The prospect of a buyer’s cartel should be able to push prices back down to between $50 and $60 a metric ton, Gadfly argued.
It’s fairly easy to see what’s happened: The promised domestic supply flood isn’t happening, causing demand and prices for imported product to surge.
While the country’s largest coal miner, China Shenhua Energy Co., managed to increase output 14.4 percent in September from a year earlier, reversing a decline over the previous eight months, the rest of the domestic industry hasn’t been so nimble.
China Coal Energy Co., the second-biggest by sales, saw production volumes down 11 percent in September. At Shaanxi Coal Industry Co., output over the three quarters through September fell almost 18 percent. At Yanzhou Coal Mining Co. the measure dropped 6.8 percent, although in the September quarter things rebounded a little to a 2.9 percent year-on-year drop.
Overall, domestic raw coal production in September came in at just 244 million tons, the lowest monthly figure outside of the Lunar New Year season since 2009. Loadings of coal onto railway carriages are looking even bleaker, hitting their worst levels in data going back to 2005 — suggesting the coal that is being sold is the stuff that’s closest to power plants and often owned by the same company.
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