China’s domestic thermal coal prices jumped quickly over the weekends despite concerns over the government’s intervention as the market is high enough.
The price rally was a little bit surprising to market players, who believed there would be a milder growth this week, after the state planner National Development and Reform Commission warned coal miners to keep price stable. The trading atmosphere also cooled down late last week.
With a big jump over the weekends, prevailing offer prices for 5,500 Kcal/kg NAR thermal coal reached 1,490-1,500 yuan/t FOB with VAT at northern ports on September 19, compared with 1,420-1,430 yuan/t late last week. Trades have been done at 1,450-1,480 yuan/t.
For 5,000 Kcal/kg NAR coal, offer prices increased to 1,300 yuan/t at least, up from 1,230-1,260 yuan/t. A trader even described trades happened as easily as “a piece of cake”.
However, several traders reported a situation where both supply and demand were weak against the rapid increase in offer prices.
“Today, it is generally pale for the downstream buying interest, with trading activity receding compared with last week,” said a Hebei-based trader. However, he believed the upward trend wouldn’t reverse until the week-long National Day holidays, which starts on October 1. “End users will gradually take it,” he said.
The price rally was mainly driven by the extreme supply shortage of spot cargoes at ports, although the stockpiles have started rebounding, a Shanxi-based trader. The trader said the railway department will prioritize the transport for long-term contract supplies, leading to limited rail wagons for traders.
This came in line with a rise in stockpiles at northern ports. Coal inventory at Qinhuangdao port was 4.7 million tonnes as of September 16, up 3.98% from the preceding week.
In addition, the price increase at mines helped support the portside market. “We expected a further price rise this week as coal prices are in the middle of a new round of increase,” said a Shaanxi-based trader, who offered his 5,500 Kcal/kg NAR at 1,480 yuan/t FOB. “The price would be 1,500 yuan/t tomorrow.”
Fast price rise highlighted the still tight fundamentals, especially as many power plants have started pre-winter restocking in case of any supply shortages similar to last year.
An Inner Mongolia-based trader blamed the supply shortage to the limit in production. “Although the government cancelled the sales quotas system, more inspectors are sent into mines to check if they produce beyond approved capacity,” he said.
Some accidents occurred in Shanxi province lately. With the national political gathering coming near, local governments felt mounting pressure to prevent accidents from happening. At present, however, the overall production was little affected.
In addition, traders were cautious of shipping coal from mines considering the high cost and growing downside risk in the wake of further government measures to curb too fast price rises.
Note: This article has been exchanged under the article exchange agreement between CoalMint and Sxcoal.
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