When you’re in a hole, stop digging. The old maxim even applies to coal mining companies. They want to believe that thermal coal prices will pick up since many have curbed production. But what if the price fall is not cyclical, but structural?
In China, prices at Qinhuangdao, the world’s largest coal port by capacity, have dropped by about a quarter this year. Higher-cost mines in China, Mongolia and Indonesia have reportedly slowed or stopped producing. Stabilising prices is one thing, but outside a few big operators (Yanzhou Coal, China Shenhua), China’s myriad smaller miners are not known for their discipline: any price rise will probably be met by a pick-up in production.
There is also the need to find buyers. In theory, thermal coal prices will climb as power stations stock up for the winter. Yet power station inventories are half as high again as their usual August levels, according to Bernstein, limiting further demand. One big generator, China Resources Power, said two weeks ago it expected further falls in spot prices. China’s economic slowdown does not suggest anyone standing by to pick up the slack.