PRAGUE – Coal’s recovery was one of the biggest surprises in commodities this year, but it is all poised to end as output rises from China, producer of half the world’s supply.

After half a decade of declines, European prices rebounded more than 80% as China, also the world’s biggest consumer of the fuel, boosted imports. Benchmark month-ahead contracts will fall by more than 25% by the end of next year, according to the median in a Bloomberg survey of six analysts and traders.

Just as Chinese policy limiting mining days kick-started the rally, a gradual boost in domestic output during autumn will accelerate a slide, according to analysts. Once seasonal winter demand in the northern hemisphere is over, China will need less imports at the same time as abundant output by other producers will keep a lid on prices from Australia to Antwerp.

“The market is going to be determined by whatever the Chinese are going to do,” said  Thomas Pugh, a commodities economist at Capital Economics in London, who predicted a price of $60 in the survey. “Everything else fades into the background.”

Forecasts ranged from $57.50 to $75 a ton, with the median at $60. Month-ahead fuel for delivery to Amsterdam, Rotterdam or Antwerp was little changed at $82.75 at 10:41 am in London. Coal at Australia’s Newcastle port, as well as front-month futures on China’s Zhengzhou Commodity Exchange, are up more than 70% this year.

The speed and magnitude of the price recovery prompted Chinese officials to loosen curbs ahead of winter. China restricted output earlier this year to the equivalent of 276 days of annual capacity to reduce a glut and support prices to aid the debt-burdened industry, before relaxing rules in September.

Chinese coal production in November climbed to the highest level this year. Average daily output jumped 13% from the previous month, according to Bloomberg calculations based on data from the National Bureau of Statistics.

WINTER DEMAND
Prices may gain further before falling once the winter is over, according to Erik Stavseth, an analyst at Arctic Securities in Oslo, who’s tracked the market for almost a decade. That may encourage some of the world’s biggest suppliers from Australia to Indonesia to ramp up output, even if China doesn’t immediately reduce imports, which would help push prices back down, he said.

At the same time, global coal use will “stall and plateau” over the next five years, according to the Paris-based International Energy Agency. While supply remains abundant, demand in Europe and the US will decline further as their economies switch to cleaner energy sources, it said in a report this month.

Europe in particular is unlikely to change course, according to Georgi Slavov, head of research at Marex Spectron, in London. The “temporary excitement” in the market caused by prolonged unexpected outages at Electricite de France’s nuclear plants this year probably won’t be repeated, so demand for replacement fuels like coal will fall again, he said.

US REVIVAL?
Adding to the bearish outlook is the US election of Donald Trump, who has pledged to revive his country’s coal mining industry and repeal environmental regulations passed under President Barack Obama. If Trump makes good on his promises and throws failing US mines a safety line, increased output would drive prices lower, said Guillaume Perret, the director of Perret Associates in London, an industry consultant.

Australia, Indonesia and Russia also have the capacity to increase exports, according to Diana Bacila, an analyst at StromGeo AS’s Nena unit in Oslo. The risk of weather-induced supply disruptions are also fading as meteorologists predict that the current La Nina weather pattern, which five years ago caused rains to flood Australian mines, will remain weak to nonexistent, she said.

The slump next year “will happen – it’s not a question of if, but when,’’ Slavov said.