China’s thermal coal prices are falling at a time when the heatwave drives up coal consumption to power more air conditioners at homes and businesses. Why does the downward correction take place?
Portside thermal coal prices have dropped as much as 100 yuan/t so far this week. As of June 23, the benchmark 5,500 Kcal/kg NAR was primarily offered at 1,250-1,280 yuan/t FOB with VAT, down from 1,350 yuan/t a week earlier, according to traders. Buying interest retreated to 1,200-1,220 yuan/t.
Cargoes of 5,000 Kcal/kg NAR coal were mainly offered at 1,050-1,080 yuan/t at northern ports.
The direct reason is that stockpiles are rather high at some northern ports such as Tianjin, pushing traders to accelerate sales to spare room for new arrivals. In addition, the recent high temperature raised concerns of self-ignition of coal piles that may trigger crippling damages.
Coal burning at coastal power plants has strengthened. On June 19, the burning volume at the six major coastal power groups reached 779,000 tonnes, up 2.6% from a week earlier and 7.8% from a month earlier.
Coal burning could have jumped faster if the rains had not been so strong in the south, which boosted hydropower generation greatly. Meanwhile, increased solar power also played a part.
“Our power generation has increased recently due to the hotter weather. We need to buy some coal from ports to prepare for further use,” said a Jiangsu-based utility source on June 23. The source added there were some cheaper cargoes available at Tianjin port with 5,000 Kcal/kg NAR offered at 1,060 yuan/t.
A Shanxi-based trader heard that some 5,500 Kcal/kg NAR coal offered at 1,200 yuan/t FOB was snapped up within seconds, suggesting the demand was still robust.
Still, the market is falling. The profound reason may be the improvement of supply. This makes sense when the stockpiles at all links of the supply chain are rising.
As of June 23, stockpiles at Qinhuangdao jumped to 5.3 million tonnes, up 6% from a week earlier and 19.1% from a month ago. This compares 4.8 million tonnes on the same day in 2021.
Likewise, Jingtang and Caoefeidian ports also registered notable increases in stockpiles.
At Guangdong port in the south of China and ports along the Yangtze River, coal stockpiles have also jumped to their highest so far this year.
The increment of coal production has been transferred to ports. In the first five months, China’s coal production rose 10.4% from the same period of last year to 1.81 billion tonnes. Coal production is likely to increase further in the remaining months as many provinces have accelerated the release of advanced coal production capacity.
The turnaround of railway delivery also played a part. Since Daqin railway ended the spring maintenance on May 20, its daily delivery rose back to 1.28 million tonnes on average, compared with around 1 million tonnes during the maintenance.
Other lines, including the short-distanced Zhangtang line, stepped up railways to northern ports, leading to higher inflows than outflows.
Short-term outlook
Traders believed the market would get support when the prices fall to the government-set caps, or 770 yuan/t for contracted coal and 1,155 yuan/t for spot coal, basis 5,500 Kcal/kg NAR.
Recently, high temperatures have sent power demand soaring in many places. Power use in China’s top financial hub Shanghai is expected to reach 35 GW during the peak period in July-August, up 4.38% compared with the highest last summer, according to a power supply guideline issued by the municipal government on June 21.
With growing power demand, buyers may take actions when the market falls to the psychological levels.
Note: This article has been exchanged under the article exchange agreement between CoalMint and Sxcoal.
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