China’s portside thermal coal prices have kept elevated since October, propelled by persistent supply constraints due to factors including Daqin maintenance, safety inspections and COVID-19 flare-ups. However, this trend could wilt and eventually drive the market down after the 20th CPC national congress.
After the political meeting ends in late October, supply shortage will subside with gradual resumption of coal production and transport.
To create a safe and stable social environment for the upcoming national party congress, safety watchdogs of all levels have stepped up inspections and urged some coal mines to shut or cut production.
This, coupled with the “closed-loop management” of COVID-19 in some key producing regions, has curbed coal production and transport, particularly Inner Mongolia and some areas in Shanxi and Shaanxi.
Also, the ongoing maintenance of Daqin railway dented coal supply from mines to northern transfer ports. This kept spot supplies under strain even after the peak demand season of summer.
Yet the central government is expected to shift back to its priority of boosting coal supply to ensure energy security after the maintenance of Daqin line ends in late October, and the current supply shortfall is on course to be greatly relieved.
On the demand side, cement and some other industrial plants will follow the government’s call to stagger production, with some industrial plants required to suspend production for part or all over the winter heating season to reduce pollution.
Cement plants in Hebei were ordered to cut production for 150 days this winter, with 120 days in heating season. The move will also weaken coal demand and dent strength for prices.
For utilities, pre-winter storage would intensify as the heating season is drawing near. Typically, most northern places start heating in early and mid-November, while some places in Inner Mongolia and the Northeast usually start in late October.
From a comprehensive view, both supply and demand have been suppressed to varying degrees before the national party congress, so the market stayed relatively resilient. But after that, the mismatch between supply and demand will be corrected, which may drive down the market.
However, there is one variable that may keep the market afloat – the epidemic. If the epidemic continues, effective supply will be significantly curtailed, which could cause the market to move in an opposite direction.
Note: This article has been exchanged under the article exchange agreement between CoalMint and Sxcoal.
Leave a Reply