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Wednesday, 14 May 14
COAL PRICES IN CHINA HAVE DROPPED TO THEIR LOWEST LEVELS SINCE END-2008


COALspot.com: Coal prices in China have dropped to their lowest levels since end-2008, Fitch says in its latest rating report on one of the coal mining company in China. Fitch expects coal prices to stabilise as customers start re-stocking and more of the smaller miners in China close, market conditions are not likely to improve meaningfully in the next 12 to 24 months.

Fitch also believes cost control is the only lever coal producers in China still have to weather the weak market conditions over the next two to three years, in the absence of any strong policy support to curb cheaper coal imports. 

Fitch also expects China's new price-based resource tax on coal mining - instead of a volume-based tax previously - to exert further pressure on Chinese domestic coal producers.

According to Fitch, the new tax, which is likely to be adopted in the near term, will probably, be around 5% of the selling price. That means the tax burden for coal miners could be roughly five times that under the current volume-based tax, although in practice the impact would be tempered by netting off other taxes against the higher resource tax.

"we expect this could accelerate market consolidation by squeezing out smaller, weaker players, which would benefit larger miners in China in the longer term", Fitch concluded.



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