Coal’s recovery was one of the biggest surprises in commodities this year, but it’s all poised to end as output rises from China, producer of half the world’s supply.
After half a decade of declines, European prices rebounded more than 80 percent as China, also the world’s biggest consumer of the fuel, boosted imports. Benchmark month-ahead contracts will fall by more than 25 percent by the end of next year, according to the median in a Bloomberg survey of six analysts and traders.
Just as Chinese policy limiting mining days kick-started the rally, a gradual boost in domestic output during autumn will accelerate a slide, according to analysts. Once seasonal winter demand in the northern hemisphere is over, China will need less imports at the same time as abundant output by other producers will keep a lid on prices from Australia to Antwerp.
“The market is going to be determined by whatever the Chinese are going to do,” said Thomas Pugh, a commodities economist at Capital Economics Ltd. in London, who predicted a price of $60 in the survey. “Everything else fades into the background.”
Forecasts ranged from $57.50 to $75 a ton, with the median at $60. Month-ahead fuel for delivery to Amsterdam, Rotterdam or Antwerp was little changed at $82.75 at 10:41 a.m. in London. Coal at Australia’s Newcastle port, as well as front-month futures on China’s Zhengzhou Commodity Exchange, are up more than 70 percent this year.
The speed and magnitude of the price recovery prompted Chinese officials to loosen curbs ahead of winter. China restricted output earlier this year to the equivalent of 276 days of annual capacity to reduce a glut and support prices to aid the debt-burdened industry, before relaxing rules in September.
Chinese coal production in November climbed to the highest level this year. Average daily output jumped 13 percent from the previous month, according to Bloomberg calculations based on data from the National Bureau of Statistics.