Chinas output started to rise in August, accelerating in October when the National Development Reform Commission allowed supply additions by over 30 million mt/month compared with a deficit of 15 million mt to 25 million mt/month earlier in the year, the analysts noted.
"In addition, some new capacity, which was supposed to be added only if equivalent amount of old capacity was phased out, reportedly started to ramp up unconditionally in recent weeks to solve the supply tightness," they said. "Although volumes added from these new mines are uncertain, we believe at least 4 million mt/month could be easily achieved."
The 90-day price of Newcastle 6,300 kcal/kg GAR has more than doubled since the start of this year, S&P Global Platts data showed. However, the price has dropped 11% since November 8, 2016, to be assessed Tuesday at $101/mt FOB, the data showed.
"The normalization in prices could take some time, as challenging weather in key production countries persists while tightness in global electricity markets, from Europe to South Korea to China, particularly as we approach the Northern Hemisphere winter, could offer support from the demand side," the analysts noted.
"But even with prices starting to come off their multi-year highs, it will likely take time for prices to normalize."
The analysts expect 2017 Newcastle coal prices to average $72/mt FOB.
"Chinese thermal coal prices may have also reached their tipping point in early November thanks in part to government intervention in the physical and futures markets," the analysts said. Chinas major coal miners, including Shenhua Group and China National Coal Group, have signed contracts with major power generators to supply 5,500 kcal/kg NAR coal cargoes for 2017 at Yuan 535/mt ($77.89/mt), sharply lower than current spot market price levels, following intervention from NDRC.
The contracted volumes account for 40% of the domestic thermal coal demand for 2017 from the power sector, the analysts noted.
Platts assessed the price of PCC 1 -- FOB Qinhuangdao 5,500 kcal/kg NAR coal -- at Yuan 725/mt Tuesday, down Yuan 25/mt from Monday, but nearly double from Yuan 365/mt assessed on January 4, 2016.
With stockpile levels and domestic coal production rebounding and seaborne prices remaining high, Chinese imports have dropped for two straight months, the analysts noted.
"Chinese coal imports may continue to decline as import arbs [arbitrage] narrowed and domestic output rises."
China imported 21.58 million mt of coal in October, including lignite, thermal and metallurgical material, down 11.7% from September.
For India, seaborne coal buying interest had been robust, as Coal India Limiteds production has disappointed so far and power plant stockpiles appear to be low, the analysts said.
CILs October production stood at 43.5 million mt, about 8 million mt short of target. The recent demonetization move by the Indian government has also dampened buying sentiment but its impact could be short term, the analysts said.
Unseasonal rains in Indonesia have played a major role in tightening supply earlier this year, propelling Indonesian coal prices to multi-year highs.
"High prices have raised the incentives for Indonesian production to increase," they said. "However, rain continues to disrupt production and some Indonesian weather forecasters expect that the abnormally wet weather could continue into January/February 2017."
The wet season in Northern Australia also has the potential to disrupt coal supply if rainfall is higher than usual, with Queensland coking coal being more exposed than thermal coal, the analysts noted.
--Deepak Kannan, firstname.lastname@example.org
--Edited by Irene Tang, email@example.com