China is currently bracing for a severe cold spell that may last till early Dec’21, wherein most parts of the country are expected to witness heavy snowfall and “aggressive fall” in temperatures, the Meteorological Administration said this week.
The weather is likely to affect logistic on a national scale as most part of northern China, the largest coal-producing region, is expected to receive heavy snowfall.
Heavy snowfall typically disrupts mining operations, especially in open-cast mines, as well as coal logistics.
According to market participants, the sharp rise in coal demand this winter may lead to an energy crisis in the country, despite record production in the past two months.
Demand for the dirtiest fossil fuel in European countries is also on an upswing as power plants have burned their highest coal volumes since March this year. Europe is also set to face a cooler-than-normal weather and sub-zero temperatures in the upcoming month.
Is China’s rising coal supply enough?
Following the government’s intervention to boost coal supply, daily coal output in the country has risen to more than 12 mn t, while average daily supply to power plants has touched 8.1 mn t, an increase of 30% on the year.
Coal inventories at power plants are also at 143 mn t as on 20 Nov’21, sufficient to be used for 23 days.
There is a strong restocking demand at power utilities currently as several have even begun issuing tenders to secure overseas coal.
However, Chinese traders continue to negotiate import prices amid competitive domestic rates, informed market participants.
The cheaper domestic coal came in the backdrop of the National Development and Reform Commission imposing strict price caps.
Chinese domestic 5500 NAR are being traded at RMB 1,200-1,250/t FOB, as against the historic high of RMB 2,600/t prior to the intervention in mid-Oct’21.
Experts fear that the current supply might fall short of demand during chilling winter months as lessons learnt from coal output disruptions from heavy snowfall earlier this month remain afresh.
Electricity supplies in China since then have largely stabilised, but continue to remain a challenge as localised blackouts are still a possibility, the state electric corporation has warned.
Global prices rise
Surrounding the winter demand expectation, thermal coal prices of several origins have risen as South African RB1 (6000 NAR) are trading at $161/t, up by $30/t since mid-Oct’21.
Tight coal supply in the country continues to cushion its prices as cargo with major exporters has been booked till Jan’22, as per sources.
Newcastle Autsralian (6000 NAR) prices are also higher at $169/t, up by 7% m-o-m.
Indonesian coal prices have also risen after a sharp decline in the past four weeks. High CV 6500 GAR prices were at $154.6/t, up 5% m-o-m as heavy rains in Central and East Kalimantan continue to disrupt operations, thereby tightening supply.
Rising gas prices are also seen supporting coal prices as US natural gas futures traded at around $5.1 per mn British thermal units in late November, the highest in over a week, amid signs of decreasing domestic stockpiles coupled with robust foreign demand.
Short-term outlook
CoalMint believes, thermal coal prices are likely to remain in an upward territory during winter as supply across geographies remain tight.
An sharp rise may, however, be capped in case NDRC imposes any further price cap mechanism in China’s domestic coal prices.
Leave a Reply