2013-05-28

China's coal depression

Maybe the commodity super-cycle isn't over, but it is heading for a big bear market.
Rising costs, weak demand harm coal industry
Sublime China Information Co Ltd, which runs the commodities website, www.sci99.com, says the industry continues to suffer from dramatic falls in prices and weak demand, caused by domestic overcapacity and growing imports.

......if the gloomy situation continues in the second half of the year, some medium-scale coal mines will go bankrupt.

Qinhuangdao Coal Inventory Rising By The Day; Small and Medium Firms Trapped (秦皇岛煤炭库存日增 中小贸易商业务几陷停滞)
Qinhuangdao seaborne coal market analyst Meng Hai told reporters that in the past decade, annual Qinhuangdao Datong-Qinhuangdao railway maintenance can cause even the Bohai coal prices rose slightly, "I remember 2010 ton floating around the 40-50 yuan , 2011 ton floating up 30-40 yuan, 2012 ton floating up 10-20 yuan, "but by 2013 that is not risen.

Reporters noted that since 2013, Qinhuangdao coal network announced Bohai 5500 kcal coal trading price index has been declining, the price index for the first week of coal per ton, 633 yuan, after basically a week to 2 yuan 1 yuan per ton rate of decline, to May 15 released the latest composite average price has dropped to the level of 612 yuan per ton. Fang and Menghai have said that this year's downward trend in coal prices was relatively unusual. Qinhuangdao seaborne coal market information editing high Lanying also said, "describes the current market demand is weak, is not generally weak."
It wouldn't take much to cause a break in the market. If speculators and traders operate on the assumption of 8% GDP growth and it slows to 6%, with some greater slowdown in energy intensive sectors, that is enough to break a highly leveraged market operating on razor thin margins. The article notes that the inventories aren't at max capacity yet, but that falling demand has already precipitated a crisis for small and medium firms, with many small firms already out of the market.

Coal Market, the Great Depression: up to 500 million tons of excess capacity, government bailout (煤市大萧条:产能过剩达5亿吨 政府出手救市)

To put that in perspective, the Chinese economy consumed 4 billion tons of coal in 2012, which puts excess capacity at about 12% of the market. This is the same situation we saw in steel the past couple of years and it continues: Surging Chinese Steel Exports Put Pressure on World Prices
A surge in Chinese steel production and a flood of exports are pressuring world-wide steel prices despite Beijing's efforts to rein in the industry, in the latest example of the global impact of China's massive industrial overcapacity.

The rise shows the difficulty Beijing's leaders face as they try to retool the world's No. 2 economy to focus more on consumers and services and diversify away from its dependence on manufacturing and big-ticket projects like highways and airports. China makes slightly less than half the world's steel, but Beijing has in recent years tried to cut back smelters that it increasingly views as polluting, low-value and outdated.

Data released this week by state-backed data provider Custeel showed Chinese steel output surged 8.4% in April compared with a year earlier to 65.7 million metric tons, its second-highest level ever. China's steel production reached its latest high in March at 66.3 million tons, rising 7.7% from the year before. The rise comes despite softer-than-expected first-quarter economic growth in China and other sluggish economic readings in recent months.
Expect a decline in coal imports.

No comments:

Post a Comment