OREANDA-NEWS. December 28, 2016. A rally in seaborne coking coal markets spurred US coal mining companies to increase output headed into 2017. But expected supply expansions in Australia and tepid demand outlooks for next year could push prices down again.

Warrior Met Coal, Ramaco and Rosebud Mining plan to start operations at new and idled mines next year, while other producers in Appalachia have extended working hours and marketed thermal coal as metallurgical products to capture higher prices.

Coal companies and company analysts estimate that producers will add 7mn-11mn t of supply to the US coking coal export market next year.

The extra supply is challenging news for some coal companies, operating amid concerns that the new tonnage may only depress prices.

Prices for US material have more than doubled in the past four months and first-quarter supply settlements between suppliers and steelmakers in the Asia-Pacific solidified higher global pricing levels at the beginning of the year.

But increased output in Australia, coupled with weaker Chinese demand, is likely to weigh on pricing in 2017 regardless of US production dynamics, analysts said.

"It looks like there will be a lot of tons chasing a back-to-balanced market, or close to it," Jim Truman, director of global metallurgical coal markets at consultancy Wood Mackenzie, said.

Chinese policy limited in 2016 the number of operating days at coal mines, prompting Chinese steel mills to import coking coal. The policy shift created a roughly 44mn t shortfall in supply. At the same time, temporary production and transport disruptions in Australia, the world's largest supplier to the export market, triggered demand for replacement coal, sending prices upward.

Australia's Illawarra and German Creek mines are expected to produce at full capacity after their owners, Glencore and Anglo American, declared force majeures at their properties this fall.

Meanwhile, China, which produces half of the world's steel, is forecast to curb production to 626.1mn t in 2017, from 645.4mn t this year.

Analysts at Citigroup said this month that the price rally was a "fluke" and the seaborne coking coal market may return to a supply surplus mid-year.

For 2017, supply of seaborne coking coal will reach 312mn t, while steel mills will consume 263mn t, the report said.

But the analysts warned that storms could limit production and transport of coking coal in Australia, and China may prioritize the transport of thermal coal over coking coal during the winter months, which would sustain higher global prices in the near-term.

Citi forecast premium hard coking coal prices will fall from \\$270/t in the first quarter to \\$130/t in the last three months of the year.

For US coking coal producers, the domestic US steel industry is expected to consume only marginally more coke. The Energy Information Administration (EIA) forecast US consumption of met coke to rise to 18.5mn short tons in 2017, from 18.3 mn st this year, the EIA's most-recent Short-Term Energy Outlook show.