According to an ANZ Commodity Insight paper, if China continues to adhere to its coal policy it will become increasingly reliant on imports.

This, the bank reckons, should result in slightly better prices in the second half of 2016 and early 2017.

China’s policy on its domestic coal industry is having a big impact on global coal markets.

Domestic supply cuts have contributed to declining excess seaborne supplies and improving imports.

This year China’s government wants to cut 280 million tonnes of capacity. That is up considerably on the 100-150Mt per annum reductions in the previous five years.

Prices have also been supported by a weaker US dollar and a 25% gain in oil prices since the start of the year.

The Australian benchmark thermal coal price has risen 20% since January to $US61 per tonne.

That is coming off a low base though of 10-year lows around $US49/t.

“We think over the next six to nine months prices will continue to be buoyed by China’s policies to reduce excess supply combined with potential supply disruptions in Indonesia and Australia from heavy rainfall,” the bank’s report says.

The ending of an El Nino event has led to Australia’s eastern seaboard getting extremely high rainfall. Good news for farmers and water supplies over there but not so great for coal mines. In some operations a drizzle can turn the soil slick enough to get a haul truck skating.

Things may not get too much better though.

“Further price gains will likely be hindered as underlying thermal power demand in China remains flat,” the ANZ report says.

“India’s drive to become self-sufficient could, in fact, reverse some of these gains.

“However, coal’s importance as a baseload energy source should keep the downside limited.

“If Chinese domestic supply continues to fall, we could see an upside case scenario where prices push towards $US75/t next year.

“However, if higher Chinese prices induce some capacity to restart and India reaches self-sufficiency within the next 12 months, we could see prices back at $US50/t.”