PERTH – A surge in coal prices driven by Chinese demand would be jeopardised should the nation reverse restrictions on working days, boosting domestic production, according to South32.
“We had the Chinese government start cracking down on the factories and mines and restricting work days” to 276 a year, COO for Australia Ricus Grimbeek told reporters in Perth on Thursday. “It could easily go back to 365 (days) depending on how they see the market.”
Chinese steel makers have petitioned the government for higher coal output as rising prices and tight supplies hurt operations, according to a letter seen by Bloomberg News last week from the China Iron & Steel Association to the National Development & Reform Commission. The government has already allowed thermal coal producers to increase output. Imports of coking coal jumped 45% in August to the highest in 13 months.
Spot hard coking-coal has more than doubled this year to trade above $205 a metric ton as the country cut production and steel output increased. Goldman Sachs Group said this month higher prices may be here to stay, increasing its forecast for 2017 by 64% to $135 a ton and for 2018 by 47% to $125. That compares to the current third-quarter contract price of $92.50.
“In December and January it was terrible and the price was really low and we really struggled during that time,” Grimbeek said.
“There has been a definite pick-up in demand from China. It’s hard for me to say that it will stick or that it will go quite quickly.”
South32 operates three underground coking coal mines in Australia’s New South Wales state, and produced 8.4-million tons in the last financial year, targeting 9.5-million tons this year.