China Coal Industry Monitor

BI Coal Operations, Global Dashboard

Andrew Cosgrove Michelle Leung

Team: Energy Team: Building Materials
BI Senior Industry Analyst BI Industry Analyst

1. Signs Point to Lower Prices on Higher Output: China Coal Tracker

(Bloomberg Intelligence) -- Chinese thermal coal prices may be poised to decline after Table of Contents
various indexes rose 7-10% since late May. Coking coal prices could similarly weaken as Topics
production hovers near its highest level since late 4Q. Output diverged in May, with
Coking Coal NEW
coking coal rising and thermal falling, yet both markets registered surpluses for the Thermal Coal NEW
second straight month. A ban on some China coal imports, as well as the trajectory of
steel output, remain key developments to watch in 2H.

Thermal coal inventories were largely built up over in June, while coking coal destocking continued to run its
course at both steel mills and coke plants. (06/29/17)

Key Points:
Coking Coal: China Met Coal Market to Loosen Further as Output
Stays High
Coking Coal: Abundant Stocks at China Coke Plants May Cap Met
Coal Buying
Thermal Coal: China Thermal Coal Market to Tighten; Supply Drops
Second Month

Topics

Coking Coal Market Still Tight Inside China

2. China Met Coal Market to Loosen Further as Output Stays High

China's domestic coking coal market deficit likely dwindled further in June after shrinking in May. While May's
monthly surplus of 108,000 metric tons was lower than April's 439,000 tons, the more important figure was
production: It rose 6.2% sequentially, or about 2.3 million tons, to 39.8 million. A 5% drop in China's composite
metallurgical coal price in June implies that imports not only recovered, possibly to as much as 5 million tons, but
also that output stayed elevated while demand was flat at best.

The year-to-date deficit through May is almost 5 million tons. The high-quality coking coal market appears much
tighter than low-quality tonnage, according to SxCoal. (06/29/17)

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 China Coking Coal Production

3. China Steel Mills' Met Coal Destocking May Be Nearing an End

China steel mills' coking coal inventories continued to be worked off in June, falling 8%. While stockpiles haven't
yet declined to the levels of 4Q, when mills aggressively returned to the market to restock, they're only 10% away.
The coal destocking is taking place amid rising steel production, with CISA reporting a 5.4% increase in the first
10 days of June. Time will tell whether steel mill profits, currently near all-time highs, will keep output buoyant in
2H. (06/29/17)

Steel Mills' Coking Coal Inventories

4. Abundant Stocks at China Coke Plants May Cap Met Coal Buying

Chinese coke inventories may decline further in the short-run given plentiful stockpiles and muted buying interest
at major steel mills in Shanxi, Hebei and Shandong. While mills in the southern region may continue restocking to
prepare for possible transport delays ahead of the flood season, it may not be enough to arrest the downtrend in
prices. Coke demand should slow during the upcoming weak season for steel production, limiting any increase in
demand for metallurgical coal. (06/29/17)

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 China Coke Plants' Coking Coal Stocks

5. China Met-Coal Imports Set to Recover as Debbie Impact Fades

Contributing Analysts William Foiles (Energy)

Chinese coking coal imports likely rose in June after falling almost 50% sequentially in May to 4.65 million metric
tons from April's record high 8.46 million tons. Restricted shipments from Australia, hampered by Cyclone Debbie,
slashed imports from that country by 84% in the month. Demand for U.S. cargoes reappeared after a lull in
January, while inbound flows from Russia and Canada similarly remained high. The market may have to wait until
July for a clearer picture of where demand may settle in 2H.

Imports through May are up 42% from a year earlier (30.2 million tons vs. 21.2 million). Mongolia (up 5 million
tons) and Australia (up 2 million) together have accounted for almost 80% of the increase. (06/29/17)

China Coking Coal Imports (Million Metric Tons)

Domestic Thermal Coal Market Loosening Slightly

6. China Thermal Coal Market to Tighten; Supply Drops Second Month

Chinese thermal coal output fell for the second straight month in May, dropping 0.8% to 245.8 million metric tons
after falling 1.8% in April. Though the NDRC said it will allow some coal mines to increase capacity -- as long as
they haven't reported major accidents -- signs are pointing to output potentially stagnating rather than rising.
Shenhua and China National Coal have suspended supplies of spot coal, while miners in Inner Mongolia will pull
back due to an inability to secure enough sales-quota tickets.

The market in May produced its second-straight surplus, at 17.4 million tons. If both imports and production fall,
the June surplus may be smaller. (06/30/17)

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 China Thermal Coal Output

7. China Thermal Coal Price May Find Short-Run Support After Rally

The path of least resistance for Chinese thermal coal prices appears to be lower in the medium term and beyond
after rallies of 7-10% since late May. Yet prices may be supported in the short-run by resilient cooling demand
and weak output increases. Though the NDRC said it will allow some coal mines to boost capacity, so long as
they haven't reported major accidents, signs are pointing to output stagnating. That could keep prices close to the
upper end of the government-proposed range of 600 yuan a metric ton. (06/29/17)

China Power Plant Stocks, Day vs. Prices

8. China Thermal Coal Imports Capped If Output Rises, Ban Passes

China's thermal coal imports remained elevated in May, rising 7.4% sequentially as inventories were restocked.
Total inflows (including lignite) reached 17.5 million metric tons, up almost 3 million tons from a year earlier. While
recent strength has been driven by Indonesian flows climbing back above 10 million tons, that's set to change as
early as July, with 20-30 million tons of imports at risk if a ban is strictly enforced. Imports may stay somewhat
high in the short-run, given strong summer cooling demand.

Year-to-date imports were up 25% through May. Australia and Indonesia continue to drive the bulk of the gains.
(06/29/17)

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 China Coal Imports: Total & Thermal Coal

To contact the analyst for this research:

Andrew Cosgrove at acosgrove1@bloomberg.net

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.