China: Thermal coal prices rally but for how long?

Mysteel Global: Domestic thermal coal prices in China have shown signs of rebounding, driven by increased coal consumption at power plants to combat scorching weather in South and East China, market sources noted. But while most market participants recognize the current upward trend, opinion is divided about how long the uptick might last.

After nearly two weeks of keeping prices stable, sellers, mostly traders, at China's northern transshipment ports raised offer prices on 23 July. Offers for 5,000 kcal/kg NAR thermal coal, the most-traded grade at ports, emerged higher at yuan 750-780/tonne ($103.1-107.2/t) FOB with VAT. Some traders claimed that offer prices for this grade have already touched a floor of yuan 750/t.

Despite the price increase, overall trading activity remains subdued one reason why Mysteel's price assessment for 5,000 kcal/kg NAR grade remained at yuan 755/t on 23 July, unchanged for the twelfth consecutive trading day.

Sellers appear to be waiting for the right moment to raise their prices, market watchers suggested. They point out that the recent rise in offer prices seems abrupt as coal consumption at power plants in South China, typically the major consumers of coal shipped from North China ports, has been rising for a while due to the hot weather.

"(Sellers) are lifting their prices when coal stockpiles at northern ports are significantly depleted," said a trader based in North China. This remark aligns with the fact that coal inventories at Qinhuangdao port have fallen below the 5 million tonnes (mnt) mark, a level considered the lower limit of "rational stockpiles" by the National Development and Reform Commission, China's top economic planning body. As of 23 July, coal stockpiles at Qinhuangdao reached 4.95 mnt, compared with nearly 6 mnt in early July, Mysteel data showed.

Despite the rebound in offer prices, there is uncertainty about sustainability. Earlier this month, a similar rally lasted for only two trading days before the market moved sideways again, Mysteel Global noted.

Most participants are cautious about the market's direction. They anticipate that typhoon-induced rainstorms could ease the hot weather in South China, potentially putting utility buying plans on hold.

According to the China Meteorological Administration, not one but two powerful typhoons-Typhoon Prapiroon and Typhoon Gaemi are forecast to make landfall in China's southern and eastern coastal provinces, including Zhejiang, Fujian, Guangdong, and Guangxi, later this week.

However, some sources argue that coal price increases would continue until at least the end of this week, citing the heavy cost burdens faced by portside traders.

A portside trader set his selling price for 5,500 kcal/kg NAR thermal coal with 1% sulfur from Shanxi province, in the north of China, at yuan 865/t FOB with VAT on 23 July, but this price was still yuan 20/t lower than his purchase costs.

"Sellers will have to insist on their pricing if they don't want to lose money," the trader said.

Coal consumption at power plants in Guangdong and Zhejiang provinces, in the south and east of the country, respectively, has been rising significantly over the past week, the trader told Mysteel Global. "That may prompt utilities to increase their restocking soon."

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