Chinese authorities introduced restrictions on the domestic coal industry in April –notionally cutting supply by around 15%.
This led to a sharp fall in domestic coal output, forcing coal consumers back to tightly supplied seaborne markets – driving global prices higher.
The downward trend in bulk commodity prices between the peak of 2011 and the cyclical lows of late 2015 – combined with the unexpectedly strong domestic output from China – drove a range of higher cost producers out of global markets.
The closure of higher cost capacity, combined with weather and infrastructure disruptions, has limited the ability of producers to respond to the increased Chinese seaborne demand of recent months.
Demand for bulk commodities has been supported by a credit-fuelled construction boom in China.
“That said, it is worth noting that China’s apparent steel consumption has remained below the levels typical across much of 2013 and 2014,” according to NAB.
“We expect the measures designed to cool the housing market should flow through into weaker construction activity in coming months. This will lower China’s steel demand and that of bulk commodities as well.”
Weaker demand, combined with an easing in the restrictions on China’s coal mining sector, should place downward pressure on bulk commodity prices across 2017, according to NAB.
Spot prices for metallurgical coal have already started to fall in December – following an easing of China’s coal mining restrictions in mid-November.
“We expect any future production restrictions to be less severe – allowing hard coking coal prices to eventually settle closer to US$100 a tonne by the end of 2018,” NAB said.