Beijing. Major Chinese coal producers have started raising production, the China Securities Journal reported on Wednesday (21/09), potentially unleashing 11 million tonnes of new supply each month onto the market and derailing the meteoric rally in Asian prices.
The move followed a meeting earlier this month to draw up a draft proposal that would allow miner to raise daily output by 500,000 tonnes if prices hit 500 yuan ($74.94) per tonne for two weeks.
China's coal production this year may drop to between 3.15 to 3.35 billion tonnes, down by 6 to 12 percent from a year ago, said two coal analysts, who declined to be named because they are not authorized to speak to the media.
The China steel industrial association sent a request to increase the coking coal supply to the National Development and Reform Commission (NDRC) on Sept. 4, according to a document seen by Reuters.
"Some smaller mines have furtively added production since August, the agreement is a big push. We see the (coal) shortage at 1 million tonnes a day, double the increases (set at the meeting)", said one of the coal analysts.
Major coal producers, including Shenhua Group Corp , Inner Mongolia Yitai Coal Corp and Huadian Coal Industrial Group were allowed to raise production as the latest coal price increased to 537 yuan per tonnes, up from 515 yuan two weeks ago, the Securities Journal said, citing an unnamed official.
China's biggest coal producer Shenhua Group has been given the green light to increase output by 2.79 million tonnes a month from 14 mines, said the paper.
The companies involved did not respond to requests for comment.
Traders said that the moves, which partially reverse government efforts to cut excess capacity, would likely end, or at least interrupt, a sharp thermal coal price rally which has seen Asian benchmark Australian physical prices soar by almost 50 percent this year.
"China gives, and China takes. First, they push up prices by capping mining output, now they will pull down prices by raising output," said one coal trader with a merchant house.
Australia's Macquarie bank this week sharply raised its thermal coal price forecasts through to 2018 as a result of China's capacity cuts announced in April.