Category Archives: Coal
China Daily today reported that there is to be a new tax on coal beginning December 1 this year. The newspaper did not report a tax rate, but said that the new tax would be on sales of the coal, rather than on production as is the case now. The existing tax is to be scrapped.
Analysts quoted by the newspaper suggested that the tax would cause a rise in coal prices of some 3%-5%.
Interestingly, the newspaper says that to the end of August, China had produced 2.52 billion tonnes of coal, for a 1.4% reduction over 2013, but sales of coal were registered at 2.4 billion tonnes. This suggests that coal inventories across plants, hubs and power stations has risen by 120 million tonnes this year. In the meantime, coal imports this year have dropped by about 5% year-on-year, so there is a definite slowdown in coal consumption. Whether this translates into a slowdown in the economy is a moot point, because China is also building the use of clean energy sources including hydroelectricity, nuclear and others.
A rise in cost of 3-5% is not likely to cause much of a change in demand patterns, especially since demand and prices are both in decline. But what’s also interesting is that the announcement from the government also talks about a 2-tier pricing system for coal. There were no details on this, but it would be interesting to see if coal for power stations for aluminium consumption are adversely affected or not.
We will keep you posted as more details emerge.
Dear readers, our latest “Weekly Report Review” has been published. if you have any questions, please tell us. Thanks!
Energy
Iraq tensions drove oil price up sharply last week. But domestic coal prices remain stable. Although coal consumption is increasing in summer, but potential negative factors continued to work, especially high level stock and decreasing ship transport fee.
AL
Compared with increasing spot alumina price, limited trade volumes of imported alumina continued to suppress prices, which still remain at a low level. However, aluminium prices continued to climb slightly.
Raw material of AL
After a adjustment in petcoke prices, last week both anode and fuel grade coke prices remained stable. But for anodes, because of long term weak demand and reducing exports, anode prices declined last week.
For other product, ALF3 rose further last week due to the low level inventory. The total aluminum fluoride stocks held by the 17 main plants decreased by compared with April.
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In a sign that the end of summer is not far away (phew), Chinese coal prices have been slipping over the last week or so.
Coal with calorific value of 5,500 kcal/kg dropped to RMB829 on Thursday, or about US$129.
Power stations are now holding back their coal purchases, hoping to improve the operating margin on electricity production.
Those of you who purchased our White Paper on China’s electricity shortages will know that the problem was entirely man-made. With electricity prices fixed, power stations were limited in their ability to operate at a profit in the face of rising coal prices. As a result, several cities and provinces suffered power cuts through the last couple of months.
Aluminium production was not greatly affected, although the July result was down 10% on June’s production level.
We maintain our prediction that 2012 and 2013 promise to be much worse than this summer, in terms of electricity shortages, as we explained in our White Paper.
It has been widely reported in the business media, but it is worth having a good look at the announcement from the WTO. they have declared that China’s restrictions on exports of certain raw materials to be illegal under WTO rules. Here is one example of the global media’s reportage.
From our point of view, a couple of the commodities named are interesting.
Why would anybody be demanding that China export more bauxite? China is already a very large importer of the red dirt, and growing faster. Chinese bauxite is poorer quality than much found elsewhere in the world, as evidenced by the fact that Chinese alumina refineries have to run additional processes to purify the product.
Magnesium and silicon made the list of materials that the WTO named. My knowledge is dated now, but I know what it used to be like. Buying magnesium (a key alloying ingredient for beer can material) was fraught with danger. Price fluctuations were crazy, and there was little or no protection against the handful of Chinese producers simply reneging on promised deliveries if the price went up. The problem was that China produced something like 90% of the world’s magnesium, so there was nowhere else t go.
Coking coal is an important product for China’s domestic steel industry, but I wouldn’t have thought that it rated as highly as major producers such as Australia and South Africa. In any case, China is a net importer of coking coal, as it is unable to produce enough for its own steel furnaces.
On the other hand, fluorspar is a hot topic. It is used in a wide range of industries, but in our space, its most important market is the ALF3 sector. Interestingly, China recently dropped its quota system on fluorspar exports. But the real problem is not in the export of the material, but in the extraction. For the last 2 years, China has been putting quotas on the total volume that its mines may produce. This year, the central authorities increased the fines for those mines that exceeded their quota. The industry insiders that we spoke to told us that mine operators were running scared of the fines. Perhaps its a little sarcastic, but I wonder if China will readily agree to lift all export restrictions on this item (and others in the same boat), safe in the knowledge that there isn’t much material to export. After all, China’s priority on this as on so many other policies, is to look after number 1.
Green pet coke has enjoyed a nice little fall in prices the last several weeks, but the big question is, where are the prices heading?
In the case of fuel grade coke, the answer is simple. It has a natural floor in thermal coal prices. Allowing for the different heating values in the two, fuel grade coke is likely to go no lower than about RMB1200, compared to thermal coal at about RMB950. Any lower price will see a switch to the cheaper fuel, which will soon lift its price back up off the floor. However, we think that thermal coal will see a lift in price, especially in Q4, taking fuel coke with it.
For anode grade and high purity cokes, the picture is a little more cloudy. We have been on the downward slope for several weeks, but will that slope prove to be in the shape of an inverted J, with a long slow rise off the bottom, or will it be more like a V, with a steep rebound?
China’s oil refineries continue to pump out large quantities of coke, largely as a result of their protracted diesel runs. To date this year, Chinese pet coke production is running 20% above that of 2010. Meantime, speculators imported large quantities of green coke, taking advantage of the lower prices in the USA and elsewhere.
Looking forward, demand signals are hard to find. The Chinese aluminium industry will certainly contribute some increased demand. We expect to see 1.5 million tonnes of new capacity enter the market in the coming 3 months. But that is not enough to soak up all the coke. Export levels have risen, as the big producers seek to reduce inventory. One thing you don’t want in China, with increasing interest rates and capital getting harder to obtain, is lots of cash tied up in inventory.
But the same is also true for their domestic markets. Calcining plants, anode producers and aluminium smelters are all resorting to a Chinese version of “Just in Time” purchasing, running inward stock levels down.
Possibly the only bright spot on the horizon, in terms of market stimuli, is that the Chinese economy is close to its soft landing point, if the chatter from Zhongnanhai is anything to go by. Last week, Premier Wen Jiabao declared the war on inflation largely won. Money supply has tightened, asset bubbles are less likely, and there is still a need to bring the economy in at a growth rate of at least 8%. These factors may well combine to see the Government ease up on the brake pedal, and maybe even touch the accelerator again, though ever so lightly. Don’t be surprised if by the end of Q3 the Chinese economy is starting to rebound.
That would stimulate some markets, though it would do little for green coke prices, especially anode grade. While a growing economy will need more aluminium (and other key building materials), it isn’t that easy to turn on additional aluminium capacity.
So we don’t think that coke prices will follow a W curve. Prices are well below the giddy heights of a few years ago, and things would have to change considerably before prices got back on the roller coaster. Those of you who remember 2007/2008/2009 prices will be relieved to know that!
We did a sweep of market opinions and discovered that the market players foresaw an X pattern. Why an X pattern? Because they had no clue.
We will update our outlook on green coke prices, and therefore calcined coke and anode prices, in our next Black China Report, due out in a couple of weeks.
The floods devastating Queensland and New South Wales in Australia make for dramatic television on the nightly news, but the effects will stay in the market for months after.
Queensland produces about 120 million tonnes of coking coal per year and about half that much of thermal coal. With several companies already declaring force majeure, and others still reeling with flooded mines and destroyed transport lines, already some producers in the USA and elsewhere are fielding enquiries from worried buyers.
The spot price of coking coal ht US$270 this week, but is sure to go higher. Thermal coal prices are also rising, heading over $130/tonne. There is no doubt that the extensive damage caused by the floods will cause the coal market to heat up strongly in the coming weeks.
This will present a challenge for China’s coal market. Currently the price of thermal coal is fixed by the government, but with prices rising in Australia, Chinese producers will be looking for a piece of the action.
Although China is technically self-sufficient in both forms of coal, simple arithmetic of supply versus demand doesn’t account for the true picture of the market. With bottlenecks both in production and in transport to the power stations and steel mills, China relies on imports as a back-up. Imported coal comes via different supply routes, and that takes some strain off the existing infrastructure.
Rising prices for coal and eventually for steel and electricity will not help the Chinese government in their fight to control inflation.
Australia might be counting the cost of the floods now, but China will soon be feeling the effects too.
I am sure everyone is sympathetic for the plight of those caught in the floods, and we at AZ China add our best wishes.
When is a price rise not a price rise? When it doesn’t stick.
The word in the market here inside China is that petcoke prices are under strong upward pressure. Sinopec has been pressuring its refineries to move the price up. (Recall that Sinopec has a unified sales system, which came into place about 12 months ago.)
Trouble is, buyers are resisting the price pressure, claiming that cash is tight. As always in a growing market, cash flow management requires strict discipline, and with a new calendar year just passed, some companies have withheld creditor payments in order to maintain their own cash position. The outcome is that petcoke buyers are crying poor, and saying they refuse to pay the increased prices.
It won’t stay this way for long. Chinese New Year is now only a few weeks away, and buyers have no choice but to buy in stocks to cover the period when purchasing departments around China are all on vacation. Sellers too are keen to close out their stocks so that they can take the holiday break.
At a minimum, it’s a canny move by Sinopec to push a price rise through at the start of the new year. They know that buyers have to stock up. But Sinopec is doubly lucky this year. With the huge floods in Queensland, thermal coal prices are sure to rise. That will have a knock-on effect for fuel coke pricing, and in turn for anode grade coke. Sinopec can afford to let buyers have a little win this week. By the end of January, the tables will be turned.
China, the world’s biggest polluter, may impose a cap on the country’s coal production by 2015 and enforce energy consumption targets to cut carbon emissions and reduce reliance on fossil fuels, according to a local Chinese newspaper.
“There must be a ceiling on coal output in the future, and energy needs can be met with new and renewable energy,” Wu Yin, a deputy director at the National Energy Administration, told the official China Energy News weekly newspaper in an interview.Wu didn’t specify any production targets.
China, the world’s biggest user and producer of coal, wants 15 percent of its energy mix to come from non-fossil fuel sources by 2020 to help meet emissions targets. By 2015, coal may meet 65 percent of the country’s energy needs compared with 70 percent currently, Wu said in the July 26 issue of the paper. “China needs a cap on both its energy consumption and carbon emissions to achieve sustainable development of its economy,” Jiang Kejun, head of energy and market analysis at the National Development and Reform Commission’s energy research institute, said by telephone today.
The country will cut output of carbon dioxide per unit of gross domestic product by between 40 percent and 45 percent by 2020 from 2005 levels, according to a statement by the State Council, or cabinet, in November last year. China may set targets for consumption of energy, including coal, for certain industries and regions, Wu told the newspaper, without giving details. About 80 percent of the country’s power plants are fueled by coal.
The following article comes from AAP today.
Mining giant BHP Billiton says it has reached terms for much of its coking coal sales for 2010, involving switching to “shorter term market based pricing”.
“BHP Billiton today announced that it had reached terms for a significant portion of its hard coking coal volumes for 2010, based on a structural change to shorter term market based pricing for the contract period,” the company said in a statement on Monday.
BHP said agreement had been reached with a range of customers throughout Europe, China, India and Japan.
“These settlements reflect the company’s commitment to achieving market clearing prices over time across all its bulk commodities,” BHP said.
At the company’s half-year results briefing last month, BHP Billiton chief executive Marius Kloppers said the spot market was the “best indicator” of supply and demand.
“I always point people back to where is the market today as the best indicator of what the supply and demand is and as the best indicator of what expectations should be on where prices are heading,” Mr Kloppers said on February 10.
The spot price of coking coal has risen to about $US220 a tonne, well above the last year’s contract price.
Bloomberg reported on March 5 that BHP Billiton had won a 55 per cent price increase for coking coal from Japan’s JFE Holdings Inc’s steel unit.
JFE will pay $US200 a tonne for a three-month contract starting on April 1, a spokesman for the company was quoted as saying.
The price settlement for last year coking coal contract, which runs out at the end of the Japanese fiscal year on March 31, was for $US130 a tonne.
Coking coal is the raw material used to make steel. BHP Billiton is the world’s biggest coking coal exporter.
The following article comes from Xinhua Agency, and appeared in China Daily today. Be prepared to see big incress in the price of coal.
China’s coal-abundant Shanxi rationed electricity as the province reported the most severe power shortage in three years as the current coal output fell short of demand drove up by the prolonged icy weather.
Two major thermal power plants in the capital city of Taiyuan, namely the branch factories of the China Guodian Corporation and the China Datang Corporation, saw power coal reserves enough for less than the warning level of seven days of use. The bitterly cold weather pushed up demand for resident heating, which prompted a power shortage of near 500,000 kilowatts, local power supply authority has said.
Although having one third of the nation’s coal reserves, Shanxi faced coal shortage due to insufficient production and hefty amount of coal outflow to other parts of the nation, Li Jianwei, deputy director-general of the provincial electricity association told Saturday’s 21st Century Business Herald.
The closure of small pits drove down the coal output, while the production of the large-scale state-owned factories could not make up for the gap, he said.
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