Chinese spot thermal coal prices remained quite firm and didn’t fall heavily even after government’s policy interventions, mainly in that overall supply was tight versus strong demand.
Latest data showed as of February 28, daily coal burns at six major coastal power utilities were 770,200 tonnes, up 13,100 tonnes from the month-ago level; and stocks were at 10.71 million tonnes, a month-on-month cut of 906,000 tonnes, enough for 13 days of usage, down 2 days from a month earlier.
The comparison with historical data showed current daily coal burns were at high levels, and rose around 100,000 tonnes from the same period in 2019, yet coal inventory and days of coverage were low, respectively 6.4 million tonnes and 12 days lower than that in 2019.
This reflected clear positive impact of the coldest February since 2009 on coal burning despite the persistent strong role of supply guarantee moves by the central government, and meanwhile active industrial production in many places of the country also released considerable demand for the fuel.
China’s eight coastal provinces also saw coverage of coal stocks at utilities fall to 15 days, even though their coal consumption rose to 1.92 million tonnes on February 24.
The above data explained why spot thermal coal prices didn’t head down quickly despite state planner’s price control, as well as absence of downstream users’ purchase amid strong sidelined sentiment.
The spot coal prices trends in March will still largely depend on supply-demand fundamentals and policy changes, with both favorable and unfavorable factors in sight currently.
Firm demand and supply tightness
March typically represents the traditional peak season for all industries and favorable policies are expected to come out in the month. In the meanwhile, foreign trades still enjoyed prosperity as overseas production was dragged down by the coronavirus pandemic, sustaining power consumption growth.
Off-peak production curbs will end in late-March along with the closure of Two Sessions, coal replenishment from non-power sectors is expected to rise steadily.
The top economic planner (NDRC) said China’s total power generation rose 5.1% year on year to 1,143.4 TWh by February 21. Given high daily power generation, China’s power output growth is likely to continue to pick up in January to February, and the upward trend may be sustained in March.
To encourage industrial plants to raise output and work at the full tilt as soon as possible, Quanzhou city said in a notice that enterprises with obvious electricity usage rises will be given a bonus, according to Daily Fuzhou on February 28.
In northern China, the ongoing heating demand lent supports to coal prices. The end buyers in coastal areas, especially those in southern regions, are expected to raise buys for domestic coal further, given expensive seaborne import cargoes.
In addition, renewable electricity generation was still in a relatively weak conditions in March and provided limited impact on replacing coal-fired power generation.
It’s also hard to substantially ease thermal coal supply tightness in the short term, since safety inspections on coal mines may remain strict in March when Winter Paralympic Games and Two Sessions will be held in the same month, and air-pollution controls are also likely to be tightened.
The coal shipment to market buyers can also face hurdles since major miners prioritize their output to power utilities with supply guarantee campaign in place.
Traders’ enthusiasm to restock was also severely hit by losses, unclear market outlook and insufficient railing capacity.
Especially against the backdrop of Ukraine-Russia conflicts, the buoyant oil and natural gas prices globally brought the coal to the fore, which may reduce seaborne coal arrivals to domestic ports and weaken its supplementary role.
Policy hit and the approaching slack season
Regulations on coal market from the state levels were tough through the year. The meetings held by the NDRC stressed efforts of stabilizing coal prices and strengthening market regulations, indicating its determination to maintain a healthy coal market.
State-run miners and major power generators together shattered traders’ speculative sentiment and pressed down upside trends of coal prices by strictly following government-set price controls.
This came together with rising fulfillment of long-term contract coal deals, possibly easing coal shortage at northern ports.
Not only that, coal consumption at residential sector may also decline as winter heating period in northern China is coming to an end and temperature in the south will also increase, reliving pressure at utilities and weakening their demand and accordingly support for thermal coal prices.
All in all, market complexity will stand still in March, and given favorable and unfavorable factors, both thermal coal prices are likely to go in both directions. Thermal coal prices trend will mainly be decided by actual implementation of policy and coal usage at power utilities.
Note: This article has been exchanged under the article exchange agreement between CoalMint and Sxcoal.
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