China: H2 thermal coal prices may fluctuate in narrow range

China's domestic thermal coal prices are expected to stay range-bound in the second half of this year, as the supply including domestic production and imports would remain sufficient. While temporary price hikes fuelled by occasional restocking movements cannot be ruled out, the overall fundamentals will not waver markedly, Mysteel predicts in its half-year forecast for the commodity published recently.

Production in Shanxi province, China's top coal-producing province, is expected to increase during this half of the year. If the province is to reach its nominated target of 1.3 billion tonnes (bnt) for 2024, Shanxi needs to accelerate its output in the remaining months of the year, as only 473.91 million tonnes (mnt) were produced in January-May, the report noted.

National coal supply could be disrupted during winter due to frequent safety incidents, although the impact of this on overall supply has lessened in recent years, Mysteel's report observed.

In terms of coal imports, volumes are expected to keep running at the high levels seen currently, considering ongoing proactive bookings by coastal utilities firms, the report suggested. According to market sources, Chinese utilities are now tendering for deliveries in late August and early September, as Mysteel Global has reported.

Inventories of thermal coal at power plants and ports should continue to hover high in the second half, the report noted, based on the recently high stock levels and the potential increase in domestic production.

This aligns with a recent report by the government-backed China Electricity Council which said that so far this year, coal stockpiles at its surveyed power plants have been consistently standing above the year-ago levels.

Mysteel Global noted that as of 4 July, coal inventories at these utilities had exceeded 120 mnt, up by 2.29 mnt or 2% from a year earlier and able to cover 27.1 days of use on average based on present consumption levels, up 3.3 days on year.

On the demand side, abundant rainfall has significantly boosted China's hydropower generation so far this year, undermining coal-fired power generation and keeping coal inventories elevated at power plants, the report said. Even though utilities are likely to embark on pre-winter restocking that will peak in September-November, the buying is expected to be gradual, with no rushes or fierce competition among buyers, it suggested.

Coal demand from non-power end users could be curtailed during the current July-December half as the country's decarbonisation programmes continue to progress, according to the report. Meanwhile, the central government is expected to instruct coal users such as cement producers to cut their production for certain periods. This suggests a few months of reduced coal consumption by such users during the winter.

Reviewing coal market trends for the first half, the report noted that in thermal coal producing regions in North China, utilities had ramped up coal procurement during the period after the Spring Festival holiday (10-17 February) which boosted prices of the fossil fuel. Prices then declined due to weaker heating demand, before increasing again in May with pre-summer restocking, and subsequently stabilised and fell mildly through June.

In January-June, prices of 5,500 kcal/kg NAR thermal coal averaged yuan 666/tonne ($91.6/t) at major producing regions, mine-mouth with VAT, against yuan 810/t over the same period last year, according to the report.

As of 28 June, Mysteel assessed 5,500 kcal/kg NAR coal at yuan 640-680/t at surveyed mines in northwestern China's Shaanxi province, while the assessment for this grade at mines in northern China's Inner Mongolia autonomous region came in at yuan 620-670/t.

At northern ports, Mysteel's assessment for 5,500 kcal/kg NAR coal peaked at yuan 900/t FOB on 13 March, dropped to yuan 835/t on 30 April, jumped to around yuan 880/t in mid-May, and fell again to yuan 855/t as of 28 June.

For the near-term market dynamic, as daytime temperatures are expected to stay above normal levels at many places in the country through mid-July, coal consumption by thermal power generation firms will increase, especially those located in coastal regions, the report said. This in turn would cause prices to rebound, it predicted.

However, amidst high compliance of medium- and long-term thermal coal contracts where prices are independent of spot trading trends and are determined by a government-guided pricing system this support may not be strong enough for the uptick to be sustained, it added.

Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and BigMint.