Wang Wei: Multi factors influencing coal market, future trend dominated by policies after the NPC and CPPCC

----Interview with Wang Wei, Assistant Manager of Coal Transportation and Sales Company of Shandong Energy Linyi Mining Group Co., Ltd

Asian Metal: Shandong-based coking coal market has seen continuous price hike since October, 2012. What is the driving force in your opinion?

Wang: Frequent and noticeable decline in coal prices occurring in early 2012 created great panic in traders, coal washeries and downstream steel mills and coking plants. Therefore, players began to decrease capacity and stocks and even some of them just held stocks of clean coal barely enough for production.

Taking Shandong-based coal mines as an example, they readjusted the product mix and concentrated in reducing stocks when facing the panic, which resulted in a little-to-no inventory in late September. Then steel prices began to zigzag up, both steel mills and coking plants regained strong interest in raising capacity and increasing stocks of clean coal. However, supply from coal washeries and traders could not meet their demand, so they turned to producers, which caused supply shortage and final price hike in the coal market.

Asian Metal: Coal import has increased in recent years. As a major coal import province, Shandong ranked the third domestically in volume of coal import in 2012. How do you think the influence of imported coal on the domestic market?

Wang: First of all, Shandong mainly imported high-quality coal with thermal coal as supplement, which meant that these materials are sold to steel mills and coking plants. In addition, 40 million tons of coking capacity in Shandong focuses on private coking plants that considers reducing costs as an important factor when purchasing clean coal, so imported coal always works as a stabilizer of price. When prices of domestic coal with same grade as imported materials rise, increasing coal imports will depress the price hike and vice versa.

Asian Metal: Shandong Coking Industry Association highlighted annexation and reorganization of local coking enterprises. What impact will the process bring to coking coal market?

Wang: Annexation and reorganization of coking plants aims to cut down capacity, to improve the quality of product and to enhance discourse power. As the target of the process was loose enterprises, the integrated group could not decide actual operation of each member and enterprises still ran in a separate way. The process failed to reach goal and no one admitted the discourse power of the integrated group as neither upstream coal mines nor downstream steel mills formed pricing power. Therefore, this annexation and reorganization brings little impact to coking coal market at present. Coal mines and steel mills are still superior to coking plants in setting prices.

Asian Metal: Coking coal prices have been stable with somewhat increase since the beginning of 2013. What is your opinion on the price trend in Q2?

Wang: An important moment is after the NPC and CPPCC in March as it is still unclear whether the macro policy that our government will release can satisfy the market expectation. If the answer is yes, coking coal prices may keep stable in Q2. But if the government intensifies regulation and control, prices will inevitably decline.

Asian Metal: Coal market experienced a sluggish year in 2012, especially in Q2 and Q3. Coking coal prices slid frequently and dramatically while downstream users tried to reduce stocks and showed little interest in procurement. How do you comment on the price trend of coal in 2013?

Wang: There are two possibilities for price trend of coal in 2013. First, coal market will see same price trend as 2012, but the decline will not be that much and the market may be easier than last year. Second, coal prices may decline slightly or keep stable in March and Q2, but then they will trend upward till the end of the year with support from peak load of summer and policy. The key time for monitoring these two trends is after NPC and CPPCC. People need to see what policies the central government will release and how these policies will guide the macro direction of coal market. No matter what trend comes true finally, the market will be certainly better than last year. However, analysis above should take international situation into consideration as there are many uncertain factors at present such as Japan’s devaluation, European debt crisis, conflict between Japan and China as well as whether USA will end QE policy in advance. As it is a time of globalization, these factors will bring fundamental impact to coal market development.

Asian Metal: What is the development planning of your company?

Wang: According to our development planning during Twelfth Five-Year Plan, we are striving to be a super-large modern enterprise by 2015 with 30 million tons of coal outputs, 10 million tons of coal production, RMB30 billion of sales revenues, RMB5 billion of tax and RMB30 billion of total assets. We will keep capacity of our mines in Shandong at 10 million tons and develop the Cangshan, Linyi-based Huibaoling iron mine to the largest iron ore industrial park in Shandong with several thousand tons of capacity of iron ore mining, washing and smelting. Inner Mogolia-based Shanghaimiao mine will be a large energy industrial park with a capacity of 20 million tons per year, specializing in coal mining, coal electricity and chemicals. We aim to establish the provincial largest and domestic leading production base of coal machines and develop a large-scale logistic group for supplying materials for self-use and for trading coal and other commodities between industries.

Asian Metal: Thank you for accepting this interview and wish your company remarkably upward.