China's National Development and Reform Commission (NDRC) said Tuesday that it will not seek to lower coal output in large scale, even as it continues to rationalize supply. This is provided that prices remain in a reasonable boundary.
"Although the task of cutting [coal] overcapacity task is tough but it is achievable and the fundamentals of supply and demand will improve further," NDRC said on its website.
Premier Li indicated that China plans to cut 150 million mt of coal capacity in 2017 earlier in the week.
The announcement comes in response to significant market anticipation as to whether NDRC would revert back to 276 work day policy in mid-March after they temporarily loosened the work day policy in November in attempts to curb increasing thermal and met coal prices.
Domestic coal prices jumped last year after the Chinese government reduced the number of working days for mines to 276 days from 330.
The price of FOB Qinhuangdao 5,500 NAR prices has surged 66% in the past one year to be assessed at Yuan 630/mt on Monday, according to S&P Global Platts data. The price had touched a high of Yuan 760/mt in November, when the Chinese government intervened to ease production and rein in the upward price trend.
NDRC said early January this year that the reasonable price range for the domestic coal should be within 6% basis on Yuan535/mt FOB for 5,500 kcal/kg NAR coal.
Imported metallurgical coal prices delivered into China also surged last year, reaching its highest point in November at $306.50/mt CFR China, more than tripled its sub-$100/mt value in April, according to S&P Global Platts data.
However it is important to note that NDRC did not make any distinction between thermal and coking coal mines in its recent statement.
NDRC also said that for those provinces which require more coal or which face supply pressure, the provincial governments could "make their own decisions" and the central government would not intervene in such instances.
As far as the coal prices are within in a reasonable range the government will not tweak its production policy, NDRC said.
NDRC'S IMPACT MIXED ON MET AND THERMAL COAL
NDRC's statement which seemingly alludes to maintaining the existing 330 work day policy for met coal might have limited impact on the physical market as Chinese supply of low ash, sulfur and high CSR coals are tight, a sell-side source said.
The source said that even from November to March where work day policy loosened to 330 days, China was still short of such good quality coals and imported significant volumes of it.
However from a confidence level point of view, such news might impact mills' desire to buy imports as it might encourage them to adopt a wait-and-see attitude, and wait for the impact to come in before making any procurement move, the source added.
The source said that NDRC's impact on thermal and coking coal has to be evaluated separately as thermal prices have been high in recent weeks.
A trader said that NDRC's move might have less impact on met coal as previously circulated rumors already suggested that coking coal would not see a return of the 276 work day policy.
Another trader suggested that this might have downward pressure on prices if implemented, but said that impact might not be as much as last year's policy did on met coal prices.