- Spot markets remain weak despite derivatives price surge
- Weather disruptions, environmental curbs lend price support
Mysteel Global: Two fatal accidents at coal mines in Northwest and Southeast China have lately fuelled market concerns over domestic coal supply again, Mysteel learnt from market sources.
One accident occurred at Hongliulin Coal Mine in Shenmu city, northwestern China’s Shaanxi province, on 25 August, killing a mining worker and causing the immediate suspension of the mine. The temporary halt, expected to last until the end of August, may cut the mine’s output by about 350,000 tonnes (t), according to Mysteel’s survey.
Hongliulin Coal Mine, owned by the industry major Shaanxi Coal and Chemical Industry Group, mainly produces premium thermal coal used for chemical production, with an annual capacity of 18 million tonnes (mnt), Mysteel learnt.
Earlier on 22 August, seven underground mining workers were confirmed dead and another was injured after an accident took place at Shuijingkeng Coal Mine in southeastern China’s Fujian province. The state-owned mine was operated by Fujian Guangfeng Mining Co. Ltd., with a production capacity of 150,000 t/year and anthracite being its main product, according to public information.
The tragedies, as some participants believed, may trigger stricter inspections by Chinese safety regulators on coal mines in other major regions of the country amid mounting pressure to ensure safe production before the upcoming national military parade to be held in Beijing next Wednesday.
These renewed supply concerns have been among the main drivers of recent uplifts in the coal derivatives market since the night trading last Friday, snapping declines for five straight sessions. On Monday, the most-traded coking coal contract for next January delivery on the Dalian Commodity Exchange surged by 6.48% in the daytime trading.
However, China’s spot coking coal market has not felt any clear support from this sentiment improvement, with some high-priced coal varieties still on track to see downward revisions amid buyers’ enhanced price sensitivity to raw material prices. Mysteel learnt that the latest mine incidents have not incurred wider mine stoppages or reductions so far.
Additionally, speculative purchases in the spot coking coal market did not surge like the previous case in July either, suggesting little impact of this short-lived sentiment shift if no concrete restrictive measures are adopted regarding mines’ operations, a market watcher said.
The spot coking coal market is still affected by the prevailing outlook for softer coal demand from downstream coke producers and steel mills due to some scheduled output reductions late this month.
The country’s thermal coal market also began its new downside trajectory yesterday after reaching a plateau for sessions, as demand from coastal power plants declined following cooler temperatures, which eased households’ air-conditioning needs. For example, the benchmark 5,500 kcal/kg NAR thermal coal traded at China’s northern ports settled RMB 4/t lower from last Friday at RMB 629/t on Monday, on FOB basis with VAT included.
Having experienced rounds of sentiment-driven upticks since late June, China’s coal market is growing to be steered by fundamental dynamics instead, which showed signs of softening but remained supported by relatively tight supply, analysts shared.
Specifically, domestic thermal coal production has not fully recovered from earlier disruptions caused by torrential rains in some northern mining heartlands, and a new round of rainfall is expected to deal another blow in the coming week. Meanwhile, coking coal production in some regions is still constrained by tight safety and environmental checks by local authorities.
Additionally, temporary vehicle restrictions ahead of the 3 September parade are expected to interrupt coke deliveries to steelmakers, which may support the met coke market and provide some cushion for coking coal as well, sources predicted.
Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.
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