Coal consumption at power plants in China has decreased in tandem with the recovering temperatures, signalling the potential to cap coal prices, market sources noted.
Approaching the conclusion of the winter heating period in mid-March, coal consumption fell at northern power plants. Data showed coal burn at power plants in inland provinces fell by 1-5% in the week of 1-7 March. Currently, coal stocks at inland power plants could sustain 20 days of use.
China Meteorological Administration forecast temperatures in northern ports of China to be 2-4 Celsius degrees higher than normal levels for March. This could further soften coal use in the shoulder season.
Temperatures in the south are comfortable, which also reduces the use of air conditioners. This, coupled with growing generation from wind and solar farms, drove down coal consumption. On 10 March, the daily coal burn at the six major coastal power groups reduced by 1.2% weekly, lifting the stocks equivalent to nearly 17 days of generation.
Due to lower coal consumption, trading liquidity remained tepid at northern ports at the beginning of the week. Buying interest shrunk again after a pickup late last week. There were some buyers but their bidding prices were no match with sellers’ expectations.
For 5,000 Kcal/kg NAR coal, buyers’ interest was around 790-800 yuan/t FOB with VAT, while sellers held their positions at 805-810 yuan/t.
“Sellers are unwilling to sell below Rmb 800/t because of the cost,” said a Qinhuangdao-based trader. “Despite the falling prices at mines, traders with better cost management can barely break even at 810 yuan/t.”
With huge cost pressures and a dim demand outlook, traders were deterred from shipping coal from mines to ports.
There were quite a lot of inquiries for 4,500 Kcal/kg NAR grade. “No cargoes are available at Rmb 700/t late last week but now you can see offers at this level,” a Jiangsu-based trader said. “But buyers tried to buy at Rmb 690/t.”
Cargoes of 5,500 Kcal/kg NAR coal were offered at Rmb 910-915/t, but bids were scarcely seen in the market.
“I think demand from the cement sector will increase after the ‘Two Sessions’,” said a Shanxi-based trader. However, some traders argued this part of demand would be not strong enough to shift the trend to an uptick.
The character of the slack season was also exhibited in stockpiles at ports. Data showed coal stocks began to rise at Qinhuangdao port, and the declines seen at other northern ports slowed.
On 11 March, the CCI index for 5,500 Kcal/kg NAR coal traded at Qinhuangdao port was at 915 yuan/t FOB with VAT, down Rmb 5/t from late last week; 5,000 Kcal/kg NAR coal was assessed Rmb 5/t lower at Rmb 800/t, and that for 4,500 Kcal/kg NAR stood Rmb 2/t lower at Rmb 698/t.
Coal prices slump at mines
Coal miners in Shaanxi and Inner Mongolia kept slashing prices in response to slack demand and mounting inventory pressure.
In Shaanxi’s Yulin, some coal mines cut prices by Rmb 40/t on aggregate from the weekend. As the cost for shipments to northern ports keeps above the selling prices at ports, portside traders are not very willing to book cargoes from mines. Consequently, miners tried to cut prices to stimulate buying interest.
In Ordos, Inner Mongolia, coal mines cut prices by Rmb 10-40/t. However, miners said the price cut was unlikely to boost demand due to the seasonal lull.