Chinese spot thermal coal prices may extend the downward trend in the near term dented by poor demand from utilities as the weather is warmer than expected. Steady domestic supply also helps weigh on the market sentiment.
This year, the winter in the southern region comes later than in previous years with power consumption for household heating much milder. At present, the daily coal consumption of key power plants in the eight coastal provinces showed a slow rise to 1.9-2 million tonnes, which was basically on par with the year-ago level but much lower than the same period in 2019.
The waning coal consumption could continue in the near term. According to the China Meteorological Administration, east China and some places in the south are expected to be 4-6 Celsius higher than normal amid a weakening impact of cold waves.
The bearish sentiment could be felt clearly at northern production regions, where the sight of long queues of trucks waiting for coal loading at mines has been gone, replaced by sporadic trucks transporting coal from nearby power plants.
The National Development and Reform Commission last week called for all coal-based power and heat utilities to sign long-term supply contracts for 2022 to strive for full coverage of their consumption.
Ahead of this, major utilities had inked additional term contracts with key miners for the fourth quarter this year. Under the additional and previously-signed term contracts, coal stockpiles have been rising fast at power plants. Inventories at key power plants in the eight coastal provinces had jumped from eight days of use in early October to 16 days in early February.
In addition to term contract supplies, coastal plants have also booked a large number of imports as supplements. The latest customs data showed China’s coal imports in November jumped 30.1% from a month ago and 200.33% from the same month in 2020.
Healthy inventories and poor demand outlook gained more chips for downstream buyers to depress the spot market.
On November 8, the benchmark 5,500 Kcal/kg NAR thermal coal prices were mainly offered at 1,150-1,170 yuan/t FOB, down from 1,200-1,220 yuan/t late last week. Offers for 5,000 Kcal/kg NAR coal declined below 1,000 yuan/t.
Real challenge
The lackluster situation may last until January when the coldness arrives. The national meteorological center forecast cold snaps would strengthen during January-February, the temperatures in most parts of the central and east regions would fall below normal levels and extreme weather and heavy snowfalls will be not impossible.
By then, coal consumption will jump quickly and the cold weather will affect coal deliveries to some extent. Therefore, utilities still need to strengthen restocking in the second half of December just in case of any emergency demand.
Note: This article has been exchanged under the article exchange agreement between CoalMint and Sxcoal.
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