China Commodities Weekly - Clamping down on coal

On 27 February, China's Ministry of Land & Resources issued a notice to suspend the application for coal mine exploration license for 2007 and 2008, attempting to stabilise the market by avoiding the overcapacity of coal sector caused by overinvestment.?

Meanwhile, the State Administration of Coal and Mine Safety (SACMS) indicated last week that it will refuse any approval of new coal mines with capacity below 300k tpa, which is part of an effort to control the total number of small coal mines below 10,000 by 2010. SACMS also requires the phasing out of all coal mines with capacity below 30k tpa by 2007.

China became a net importer of coal in January 2007 to the tune of 1.4mt, according to China's trade statistics. Chinese coal imports rose by 81% YoY in January, to 4.7mt, while coal exports plunged to only 3.3mt in the same period, 20.4% lower YoY (as previously reported).

SHFE copper prices made remarkable gains after the long holiday helped by the strong surge on the LME during the Chinese Lunar New Year holiday. The SHFE copper front month contract climbed up to Rmb57,380/t (US$7,356/t) at market close on Friday, a huge jump of Rmb1,770/t (US$227/t), or 2.2% from the previous week's close. SHFE aluminium prices weakened last week despite the strong recovery in copper prices. The front month aluminium contract was down by 1.2% WoW to close at Rmb19,670/t (US$2,522/t) on Friday.

Chinese metals trade data for January was released last week, revealing some interesting trends. Most notably, there was a sharp fall in refined lead exports ?to their lowest level for nearly a decade; another month of extremely low tin exports; remarkably low net exports of aluminium, but apparent demand growth in aluminium of nearly 50% YoY; huge imports of bauxite; extremely strong refined copper net imports ?the highest level of net imports since early 2004; as well as strong imports of zinc concentrates and extremely strong net exports of refined zinc.

Last week, Chinese hot rolled steel prices increased by 0.6% WoW to US$477/t ex-Vat; cold rolled coil reached US$563, increasing by 0.6% WoW and 1.4% MoM. Galvanised steel prices were unchanged WoW at US$611/t without Vat; while rebar increased by 0.8% to US$358/t.

The Indian iron ore export prices have jumped from CIF US$82/t to CIF US$85/t over the past two weeks, while domestic iron ore prices have also continued to climb. Hebei 66% iron ore fine increased by 1.3% WoW to US$87/t ex-Vat.