China's thermal coal market may remain range-bound in Sep'24

Mysteel: China's thermal coal market is expected to see limited price fluctuations in September 2024 following an uneventful August, which is typically a peak season for coal consumption, Mysteel's monthly report for the commodity shows.

Throughout August, miners in Chinese major coal mining regions maintained stable production with little disruption from mine safety or environmental inspections. However, demand for thermal coal from power plants and other end users was not as robust as expected for a peak power season due to the use of alternatives such as hydropower and other renewable energy sources. This led to a market surplus that weighed on the prices of the fossil fuel.

According to Mysteel's price assessment of spot thermal coal cargoes traded at the northern transfer ports, the 5,500 kcal/kg NAR grade fell by RMB 10/tonne (t) ($1.4/t) over August, settling at RMB 840/t FOB, including VAT, by the end of the month.

With coal prices failing to rebound during the peak power season, a significant recovery in September appears unlikely, Mysteel predicts, as this is when the market enters the "shoulder season" between the summer and winter peaks, particularly when downstream utilities are well-stocked with the fuel.

As of 30 August, coal stockpiles at 294 power plants nationwide, surveyed weekly by Mysteel, could sustain 20.7 days of use, as compared with 19 days a year earlier. The inventories could have been even higher if not for the prolonged hot weather extending into autumn this year.

Additionally, hopes for increased demand from non-power sectors, such as cement and chemical producers, are tempered by broader economic challenges. China's official manufacturing PMI remained in contraction territory at 49.1 in August, marking its sixth consecutive month of decline.

The availability of cheaper seaborne thermal coal may also encourage Chinese coastal utilities to choose imported cargoes, thereby potentially keeping domestic thermal coal prices in check. According to Mysteel's calculation, on 3 September, Indonesian 3,800 kcal/kg NAR coal held a substantial price edge of RMB 114/t compared with the same domestic grades, both on CFR South China basis with VAT included.

On the other hand, some factors could also prevent a sharp decline in coal prices this month. First of all, the weather. The abnormal post-summer heatwave, particularly affecting central and southwest China, could boost demand for thermal coal. Regions such as Hubei, Sichuan, and Chongqing are experiencing scorching temperatures of 40-42 degree Celsius, which are expected to persist until mid-September, according to the China Meteorological Administration.

The heatwave has also impacted hydropower generation, with water outflows from major reservoirs, including the Three Gorges Dam, significantly lower than last year. This could increase reliance on coal-fired power plants.

Another factor underpinning the thermal coal market is the scheduled maintenance of the Daqin railway, a crucial coal transportation route linking the coal hub of Datong in Shanxi province to the Qinhuangdao Port in Hebei province. This may lead to reduced coal availability at the northern ports, easing pressure on the supply side.

As such, China's thermal coal market in September is likely to experience minor price fluctuations, with both upward and downward pressures at play, the report concludes.