The Entire Chinese Coal Industry is Bust

At least for the time being.

Platts reports data this week showing that the current Chinese price for thermal coal (as reflected in the FOB Qinhuangdao 5500 NAR marker) is below the cost of production for more than 90% of domestic miners.

That’s a huge revelation for the global thermal coal market. No one in China is making money at current prices.

There hasn’t yet been much word on coal mines closing in the country. But that would be the next logical step under current circumstances. The chart below (with data from China Data Online) shows that Chinese coal producer profits (black line) dropped dramatically in the first half of 2013.

130902 Coal Producer Profits

The data show that the drop in profits is partly a result of declining prices (red bars). But more due to a pervasive problem for the global mining sector: rising costs (blue bars).

It would appear that today’s thermal coal prices are simply too low for the current economic environment. That should provide an upward push to pricing sooner or later.

Here’s to drawing the line in the right place,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

 

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