Coal news and updates

China’s thermal coal prices dropped slightly from recent highs, as supply tightness eased with the accelerated release of high-grade mining capacity since late July.

Industry insiders, however, said prices of the power generating fuel would not drop sharply, supported by multiple factors, which may even led to another price rally late next month and through the last quarter.

It is true that hot weather and lower-than-expected hydro output, partly for the control of floods, pushed up demand for coal-fired electricity in the past months. But, it is more persuasive that stronger power demand from the industrial sector is the major driver for sustained solid growth in coal demand.

And, this is expected to underpin thermal coal demand continuously in the months ahead, after the end of the hot summer.

Coal stocks at major power plants have stayed at a moderate to low level, and need to be replenished before the arrival of the peakwinter season. Chinese ports and mines that usually couldn’t function like impounding reservoir would add to market volatility.

As of August 18, coal stocks of Qinhuangdao, Huanghua, Caofeidian and Jingtang ports amounted to below 13 million tonnes, far less than levels in 2014 and 2015.

Large state-owned mines just have 35 million tonnes of inventories for now, lower than 2014 and 2015’s level.

Stocks of the six power plants total around 11.3 million tonnes for now, 1 million tonnes more than the year-ago level, but the volume can barely cover less than 14 days of use.

Daily coal consumption averaged 721,000 tonnes at China’s six major coastal utilities in July, up 10.5% from a year ago; while that reached 798,000 tonnes over August 1-18, rising 13.2% from the year prior, both far more than expected.

Tianjin port is the first one that is required to ban diesel-fueled trucks by end of July; Jingtang, Tangshan and all other Bohai Rim ports will follow suit to ban these trucks as of end-September, according to a document issued by the central government early this year.

According to incomplete statistics, there are at least several million tonnes of coal trucked to Bohai Rim ports each month. Traders may switch to deliver cargoes through Qingdao, Rizhao, Lianyungang and other Huanghai-rim ports or choose railway instead if the bans take effect.

For some miners in Inner Mongolia, Shanxi and Shaanxi that mainly depend on truck transportation, it’s beyond doubt that the truck ban will tighten rail transport capacity, which further stokes worries over supply shortfall.

For the supply side, environmental and safety inspections have continued to impact coal production in the country.

With the upcoming 19th CCP National Congress, which is due to start in November, governments at all levels will surely give coal mine safety inspection a high priority, which may affect coal production further.

The recent mining accident in Shanxi also raised the alarm among safety watchdogs at various levels, which have recently tightened supervisions over coal mines in major producing provinces.

It’s conservatively estimated that about 3% of coal capacity can’t be released due to various safety issues.

In addition, China’s leading miner Shenhua Group suspended production at two opencast mines in Inner Mongolia, stirring more concerns of the tight supply.

The suspension is estimated cut 22 million tonnes of production at these two mines starting from August in 2017. Shenhua Group is expected to decrease commercial coal production and sales by 20.6 million and 11.5 million tonnes in 2017, respectively.

Coal imports will give limited support for the domestic supply shortage in the future. From July 1, all second-tier ports were not allowed to handle coal import business, as an effort to fend off inflows of inferior coal. Customs also prolonged clearance for coal imports.

Under multiple measures and policies, China’s coal imports finally dropped to 19.46 million tonnes in July, falling 8.25% from a year ago and down 9.90% from June. Coal imports may not increase sharply in the short run.

In the sum, the imbalance of supply and demand is expected to continue in the months ahead. It’s likely to prevent the prices from going up rapidly if high-quality capacity can be sufficiently released by the end of October.

If necessary, coal mines that have started production before gaining official approval can be allowed to operate prior to completing the capacity replacement within a limited time.

Source: Fenwei Energy