Déjà vu, all over again: Even though China’s National Development and Reform Commission (NDRC)has largely abandoned its controversial 276-day policy, imposed during 2016’s coal industry reform – its more moderate approach to change this year has helped deliver another deficit.For thermal coal, weak supply growth vs. China’s summer demand kick,have together driven up local thermal coal prices by 15% in just 4 weeks. So last week, the NDRC called for meetings with China’s big thermal coal miners, to discuss rebalancing options. Sound familiar? Yes, it’s all playing out just like last year’s event, when the NDRC’s output rate cap saw China’s supply rate collapse 10% + prices rise sharply.
Hot weather-driver:For 18 months now, the market has focused on China’s thermal coal supply-side issues (local production, imports, rail/port access, weather). But this year, we’ve got a strong seasonal demand kick too, buoying prices. State Grid reported that widespread hot/humid weather boosted air conditioner use across provinces of Hebei, Shandong, Shanxi, Shandong, Inner Mongolia,Fujian, Henan,Liaoning, Shaanxiand Xinjiangin over the past week; utilities there are reporting sharp inventory draw-downs. While conditions have cooled across China in recent days,5 more weeks of summer remain.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
