China's coal producers have sought government approval for a plan to increase output, sources said on Thursday, partially reversing efforts to cut capacity that has sent prices soaring and depleted domestic stockpiles this year.
The State Council must now decide whether to give the greenlight to the draft proposal, which was discussed at a meeting in Beijing of major producers, provincial officials and the state planner, the National Development and Reform Commission, three sources familiar with the gathering said.
Any output increases could take effect as early as Saturday, according to a draft of the proposal seen by the sources, including one who was at the gathering.
Traders said any shift in policy could hurt imports and seaborne coal prices, which have taken off this year due to capacity cuts, while helping boosting supplies to utilities.
However, a rule introduced by the government limiting the number of days each year mines can operate to 276 would remain in place, sources said.
The size of the increase in tonnes is not known, but an analyst familiar with the plan said the producers have considered increasing output by 8-9 million tonnes per month.
That's equivalent to just over a third of the country's import of the fuel in August.
The reversal of a key government policy underscores the complexity facing Beijing as it tries to cut excess coal mining and shift the country, the world's second-largest energy market, towards using cleaner, renewable sources.
Australian physical coal prices, which are seen as a benchmark for Asia, have risen by more than 40 percent this year, driven largely by China's cuts to its domestic mining capacity.
Those moves forced Chinese utilities to import raw material, flipping coal from being a depressed market to what Goldman Sachs now says is one of 2016's hottest commodities.
Imports last month soared 52 percent from a year ago to 26.59 million tonnes.
Stockpiles in the country's major sea-borne coal transportation hub at Qinghuangdao dropped to a historic low of 2.5 million tonnes last Friday, China Coal Transportation and Distribution Association (CCTD) said this week.
Before this year's rally thermal coal prices were the first major energy source to go into a tailspin, dropping 70 percent in value between 2011 and late 2015, and analysts from the International Energy Agency (IEA) and Goldman Sachs last year said coal was in terminal decline.
Thermal coal is the world's second most used fossil fuel, after oil, and it is the world's most used fuel for electricity generation.
Coal accounts for almost two-thirds of China's energy consumption.
(Reporting by Kathy Chen in Beijing and Henning Gloystein; writing by Josephine Mason; Editing by Greg Mahlich)