Coal was one of the best performing commodities in 2016 after years of declining prices. However, this revival was primarily due to reductions in supply coupled with cold weather, which boosted demand. This Energy Watch looks at the outlook for supply of and demand for coal in China over the next few years and the potential impact on prices.
The Chinese government surprised the market by heavily restricting domestic coal supply last year. In April the government reduced the number of days that coal miners could operate to the equivalent of 276 days a year, down from 330, around a 16% reduction. This caused a significant decline in domestic production in the first half of 2016. Output declined by almost 10% y/y in the first six months of 2016. This reduction in supply, combined with greater than expected demand, due to cold weather in the autumn and winter, led to a sharp reduction in stocks and a surge in imports, which boosted global prices.
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