China metallurgical coal market: UBS raises its 2026 met-coal forecast as supply cuts deepen, while expecting easing from Q4

Overview

This China metallurgical-coal market update argues that a broader and more persistent domestic supply disruption has lifted 2026 prices and tightened the market. UBS expects the imbalance to ease into Q4 as production and imports recover, while viewing 2027 as structurally tighter than 2H24–25 but less extreme than 2026.

Core views

UBS raises its estimate for 2026 domestic clean met-coal output cuts to 38mt from 15mt because production has normalized more slowly than expected after the 22 May mine accident. Safety inspections and supply curbs have been stricter and broader than in prior cycles, reinforced by anti-corruption measures. Through 7M26, domestic clean met-coal production was down 18mt year on year, including a 15mt decline in Shanxi. UBS nevertheless expects recovery to gain traction from October as winter energy security becomes more important. Mysteel fieldwork indicates that 93 Shanxi mines with 122mt of capacity plan output increases from late September through December. Permanent closure of non-compliant capacity and annual output quotas should prevent full normalization, but UBS expects the domestic supply decline to narrow to about 7% year on year in Q4 from about 20% currently. Imports are expected to partly offset lower domestic output. UBS retains its forecast for around 20mt of additional 2026 imports, but cuts its Mongolian-import forecast to 75mt because of political disruptions and diesel shortages. Mongolian met-coal imports were still up 49% year on year, or 17mt, in 8M26, but Ganqimaodu port traffic had fallen 50% since mid-August disruptions. UBS expects stronger Australian inflows to offset much of this shortfall, raising its Australian import estimate to 15mt as the Shanxi HCC rally widens the import-arbitrage window. Total Chinese met-coal supply is forecast at 581mt in 2026, down 3% year on year. Demand remains weak. UBS maintains forecasts for 2026 coke production and pig-iron output to each decline 1% year on year. Weak property, infrastructure and domestic consumption have outweighed recovering steel-product exports and continued growth in steel semis. Pig-iron average daily output was down 0.6% year on year in YTD26, while coke output was down 0.2%. Although demand for coking by-products rose sharply, coke producers have optimized coal blends rather than expand output, leaving coke production tied closely to pig-iron demand. The September–October peak season has tracked below expectations, mills are losing Rmb150–200/t, and the profitable-mill ratio has dropped to 8%. UBS therefore sees rising downside risk to steel production and a gradual easing of met-coal tightness into Q4 as supply improves. UBS raises its 2026E LS HCC price forecast to Rmb1,790/t, up 29% year on year. It expects an average Rmb2,150/t in Q3 before moderation to Rmb1,800/t in Q4 as the market rebalances. Prices reached Rmb2,500/t in August, a 50–60% increase since the coal incident, driven by Mongolian-import disruption, Middle East-related rallies in energy and chemical prices, and heightened domestic supply concerns after anti-corruption campaigns and further mining accidents. The coal-coke spread widened to a record Rmb600/t, allowing higher chemical profits to absorb elevated coal costs. UBS stresses that the rally did not reflect stronger steel profitability: lower iron-ore prices and stronger coke-chemical profits bore much of the burden, while steel producers largely failed to pass raw-material cost increases downstream. For 2027, UBS frames the central debate as whether current tightness is temporary or structural. It forecasts domestic clean met-coal output of 452mt, recovering from 441mt in 2026 but remaining below 480mt in 2025. A more persistent regulatory crackdown and anti-corruption measures could remove some capacity permanently, while energy security and Shanxi’s dependence on coal employment and fiscal revenue should encourage selective approvals for mines meeting safety standards. Even with partial recovery, new capacity is unlikely to fully offset permanent losses, and pig-iron demand is expected to remain near a roughly 1% year-on-year decline. UBS therefore expects greater import dependence and a market structurally tighter than the oversupplied 2H24–25 period. A de-escalation in the Middle East could reduce energy and chemical prices and erode coke producers’ profitability cushion. UBS forecasts normalized 2027 LS HCC at Rmb1,650/t, down 8% year on year: above surplus-period conditions but below 2026 levels.

Analysis framework

UBS uses a China met-coal and coke supply-demand model, combining domestic output trends, mine-restart plans, import flows, pig-iron and coke production, steel profitability, and price-arbitrage indicators. It then translates the projected balance into quarterly and annual LS HCC price forecasts.

Methodology notes

• Industry AnalysisSupply-demand framework

  Met-coal and coke supply-demand model

  UBS compares domestic production, imports, pig-iron and coke demand, and inventory changes to judge market tightness and price direction.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Coal-to-coke-to-steel margin transmission

  The report examines whether higher met-coal costs are absorbed by coke chemical profits or passed through to steel prices, explaining the pressure on steel-mill profitability.

Key data

• 2026 domestic clean met-coal output cuts38mtRaised from 15mt.
• China total met-coal supply, 2026E581mtDown 3% year on year.
• China clean met-coal output, 7M26-18mtDown 6% year on year; Shanxi accounted for -15mt.
• 2026E LS HCC price forecastRmb1,790/tUp 29% year on year.
• Q3 and Q4 LS HCC price expectationRmb2,150/t and Rmb1,800/tQ3 average followed by Q4 moderation.
• 2027E normalized LS HCC priceRmb1,650/tDown 8% year on year.
• Coal-coke spreadRmb600/tRecord level supported by stronger chemical profits.
• Profitable-mill ratio8%China profitable-mill ratio had fallen to this level.

Impact & implications

UBS sees the 2026 price surge as primarily supply-led and partly cushioned by coke chemical margins rather than improved steel economics. Its outlook implies easing near-term tightness as supply and imports recover, but a 2027 market that remains more balanced and structurally tighter than the surplus conditions of 2H24–25.

Risks

• Changes in economic conditions, feedstock prices and government policies could alter steel prices and the coal supply-demand balance.
• Property and infrastructure fixed-asset-investment growth, environmental and capacity regulation, SOE reform, and iron-ore and coking-coal prices are stated risks for steel coverage.
• Higher-than-expected coal-sector investment, looser coal-consumption policies, higher inventories, or weaker infrastructure-project growth could affect the coal market.
• Stricter safety or environmental inspections and stronger-than-expected power demand are identified upside risks for coal-sector coverage.

What to watch

• The pace of Shanxi mine restarts from late September through December and whether domestic output declines narrow as UBS expects.
• Mongolian political disruptions, diesel availability and Ganqimaodu port traffic, alongside the scale of Australian import recovery.
• Steel demand during the September–October season, pig-iron output, mill losses and the ability of steel producers to pass through input costs.
• The persistence of safety and anti-corruption measures, permanent capacity removals and policy support for energy security.
• Whether Middle East tensions de-escalate and reduce energy and chemical prices and coke producers’ margin cushion.