Ominous signs for Australian coal miners surfaced yesterday, with reports China's biggest coal mining province, Shanxi, would reopen idled mines and produce an extra 150 million tonnes in the second half.
Demand for Australian coking and thermal coal surged unexpectedly in recent months as stimulus-led demand combined with the closure of high-cost and unsafe mines left China short of coal.
In response, Australian mines that were shut due to the global economic crisis have started to return to production.
This week, BHP Billiton, whose Queensland mines make it the world's biggest coking coal exporter, said its mines were back to almost full capacity.
Coal miners have been optimistic about the demand, but wary of how sustainable it could be, knowing that China, the world's biggest coal producer, is capable of swamping the market.
Stoking those concerns, top-five Chinese power producer Huadian Power International announced Shanxi province's second-half output could rise to 400 million tonnes, from 250 million tonnes in the first half.
By comparison, Australia, the world's biggest coal exporter, exported about 250 million tonnes of coking and thermal coal in the last financial year.
ANZ head of commodities research Mark Pervan said although the figures could put a damper on some enthusiasm for coal stocks, he believed second-half coking coal demand from China was being underestimated by the market.
"Second-half demand is going to be quite strong. It will be when the stimulus package is starting to hit the ground," he said.
He said a lot of the demand would be in steel-intensive sectors such as real estate and motor vehicles.
Almost 4000 people were killed working in Chinese coalmines in 2007, prompting the government to close smaller mines.
Still, Australian miners have been sceptical about China's willingness to keep mines shut in the face of recent gains in spot prices.
One local mining source with contacts in China said he was doubtful China's coal output had been slashed as much as stated, with smaller mines often getting around directives to shut down.
Chinese imports of coking coal, mostly from Australia, surged to about 4.6 million tonnes in June, up about 50 per cent from May.
That compared with almost nothing a year earlier when China was a net exporter.
Source: The Australian
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