China's domestic thermal prices are bottoming due to increased coal demand and transactions, while local producers like China Coal and Shenhua are not expected to cut production, an analysts' report from UOBKayHian said Tuesday.
The report also said that in January-July, China's total coal production fell 3.5% year on year to 2.1 billion mt. China Coal and Shenhua's coal production increased 6% and 2% year-on-year respectively, showing that low cost producers are not cutting production and would continue to gain from increasing their market share. Shenhua's coal sales were down by 27% to 33.1 million mt, compared to its coal production of 26 million mt last month.
"It shows that Shenhua has reduced its purchase of third party coal. We think the reason was because of reduced supplies from other coal producers as they are cutting back their production," the analysts said.
The anticipated fears of the tight global supply are due to the recent Drummond strike as well as the protracted union talks in South Africa, according to the analyst.
