Asia Thermal Coal Sector To Remain Under Pressure Next Year: Fitch

New Delhi: Asia's thermal coal industry will remain under pressure in 2017 due to a more-than-adequate capacity and price adjustments that are likely to be downward, Fitch Ratings said on Thursday.

The strong pricing rebound since early 2016 is unlikely to be sustained as the Chinese government relaxes its working-day curtailment policies to manage prices, it said in its report.

"Supply-demand dynamics remain on soft ground, as China eliminated only 152 million tonnes (MT) of excess capacity in 8M16, compared with 600 million tonnes of capacity seeking production approval and another 800 million tonnes under construction," it said.

Meanwhile, India is ramping up domestic supply aggressively to enhance energy security and reduce current account deficits, while domestic demand growth has been lacklustre.

The Chinese government has relaxed its supply controls since September to prevent runaway coal prices from delaying capacity rationalisation.

"Recent policies reveal Beijing's wish to keep the 5,500kcal/kg coal prices below CNY460/tonne, versus CNY607/tonne as of end-October," it said.

Fitch believes the government has ample measures to curb prices, given sufficient capacity to serve stagnant demand. 

The depreciation of the Chinese yuan against the US dollar can also have a negative effect on import demand and seaborne prices in dollar terms.

Indonesian coal producers focusing on the export market are likely to suffer the most as their largest buyer, India, experiences weak thermal power generation, curbs coal imports and increases utilisation of higher-rank Australian and South African coal.

The recent appreciation in thermal coal prices will prop up the operating cash generation of Asian coal producers; however, the price outlook remains uncertain and challenging.