By Shuli Ren
Coal miners rallied after Bloomberg reported that China may curb coal production again, as early as March.
Source: Barron's Asia
http://blogs.barrons.com/asiastocks/201 ... ion-again/
Coal miners rallied after Bloomberg reported that China may curb coal production again, as early as March.
The Ministry of Commerce said China would suspend all imports of coal from North Korea for the rest of the year, in accordance with existing United Nations sanctions over Pyongyang’s nuclear and missile programme.
A UN resolution passed in November limits North Korea’s coal exports for 2017 to 7.5 million tonnes, worth about US$400 million, but down 62 per cent from exports in 2015.
Washington had earlier called on Beijing to cut coal imports, which earned Pyongyang US$1 billion in 2015.
In 2016, despite a UN sanction imposed in April that year, China bought even more North Korean coal, with imports reaching 22.5 million tonnes, up 14.5 per cent from the previous year.
Jefferies analyst Laban Yu notes:
Spot and futures prices have been falling since mid-March, picking up momentum in the past few weeks as policy makers indicated that not only are they abandoning production restrictions, they are accelerating and expanding new low cost mines.
Sep '17 futures contracts have fallen Rmb75/ton since early April to just above Rm515/ton.
We believe they have yet to find a bottom.
So how low can the coal price go? Yu expects it to fall to below CNY500 per ton in the second half of the year and to CNY400 a ton in 2018.
Yu has lowered his target price on China Shenhua Energy (1088.HK) by 15% to HKD10.75 a share, which implies 40% downside. Shenhua shares are up 23% this year and have gained 45% over the past year.
Yu also has an underperform rating on China Coal Energy (1898.HK) and Yanzhou Coal Mining (1171.HK) although he notes the low price-to-book multiples of the two stocks could put a floor under their share prices.
VanEck Vectors Coal ETF (KOL)
With steel demand already on the rise due to a growing economy, I expect met coal to take off, too.
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