Jul. 04, 2006
inventory at different sectors and industries of China as well as the aggregate inventory across China has been increasing ever since the successful conclusion of key power coal supply and demand contracts for year 2006 in April this year and the looming of coal consumption's slack season. By the end of May, the coal inventory of China's total, coal enterprises, power grid companies (supplying electricity to nearly users directly besides the transmission to power grids) reached 142 million tons, 33 million tons, 24.66 million tons, up by 37.74 million tons, 11 million tons and 810 thousand tons from previous year respectively, while that of major transferring ports reduced 80 thousand tons from 2005 to 14.71 million tons. The inventory in the above-mentioned sectors grew 6.0%, 13.8%, 13.5% and 13.7% from April this year respectively. In May, China's coal inventory has been changing at the fastest growth rate, with the aggregate inventory touching the recent two years' highest level.
Meanwhile, the inventory at Qinhuangdao Port, China's largest and most important coal transferring port, has witnessed a continuous growth in the past two months with new records one after another. It outstripped 6 million tons on June 19 and kept at 5.90 million tons for nearly one week. This stirred up some panic in the coastal coal markets, and people fear the coal price in these areas may slide down if the port takes some measures to release the high inventory.
1. The Increase Has Its Objectivity and Inevitability
1.1 Requirement of Enhanced Coal Handling Capacity
The designed coal handling capacity of Qinhuangdao Port reached 200 million tons or so following the completion of coal expansion project in April this year.
The improved handling capacity requires a corresponding inventory. If the rational inventory should be 2.80-3.10 million tons for a handling capacity of 110 million tons, the current suitable level should be 5.10-5.60 million tons. Considering other factors such as improved turnover at coal stocking places and the turnover speed and etc, the 5.90 million tons of coal inventory is still within the suitable scale.
1.2 Result of Improved Inventory Capacity
Not only the coal handling capacity project completed in Qinhuangdao Port, the total designed inventory also has been improved by 5 million tons from 2005 to 9.50-10 million tons. Based on this, the 5.90 million tons of stock is some 62% of the port's total inventory. If the actual inventory is between 6.8 and 7.0 million tons, the use ratio of the total port inventory is only 85% or so. That means, though the stock is high as 5.90 million tons, it is not yet the saturation of the port.
1.3 Preparation for the Coal Transportation Expansion of Daqin Line
Daqin Railway Line had realized the expansion of 50 million tons of coal transportation in year 2005 and is expected to increase another 50 million tons in this year.
As a major transferring port for the coal transported by Daqin Line, Qinhuangdao Port shoulders nearly 80% of the line's coal transportation. Any malfunction resulted from coal transferring equipments or handling capacity of the port, or other factors including the changes in season and climate, and etc, will affect the fully operation of Daqin Line. Therefore, enhancing the coal inventory of Qinhuangdao Port is one of the measures to ensure the smooth coal transportation of Daqin Line.
If the suitable inventory in Qinhuangdao Port was 2.80 million tons when the coal transportation was 120 million tons for Daqin Line in year 2003, the 5.90 million tons of stock is not too high comparing to the 250 million tons of coal transportation for Daqin Line this year.
1.4 Have a Good Appreciation of Inventory Growth
The coastal area, as one of the main coal consuming areas in China, requires an overall improvement in coal supply, transportation and inventory to meet its relatively high demand growth over coal in a long term.
The expansion of 50 million tons coal transportation for Daqin Line in 2005 has been regarded as the main reason for the promptly released coal supply and demand tension across China. And the planned 50 million tons expansion in 2006 will still be the core measure to ensure the growing coal demand in the coastal area.
Under this circumstance, it is of rationality and necessity for Qinhuangdao Port's coal inventory to grow along with the increase in both coal consumption and demand in downstream market. Otherwise, it may experience the serious stagnant period of coal shipment, as happened in Tianjin Port and Huanghua Port since the year beginning.
2. The Current Inventory not beyond Qinhuangdao's Limit
Judging from the statistics, the coal inventory in Qinhuangdao Port surely is in a historical record and has posed pressure to the supply-demand relationship in coastal areas, realistically and mentally. However, the inventory is within the reasonable limit if analyzed comprehensively.
2.1 Slack Season for Power Coal Consumption
In China, the consumption of power coal accounts for above 50% of the total coal consumption. Generator units in thermal power plants will enter into its maintenance and overhaul period when the hydraulic power stations resume operation in April and May each year. The consumption and purchase over power coal accordingly will see a decrease, which is also known as the slack season for coal demand. The railway transportation, however, is relatively balanced and will continue as usual, in spite of the slow demand in downstream areas. Thus, the inventory in transportation sectors or distributing areas witnesses a high growth.
The high coal inventory in Qinhuangdao Port is closely related to the current coal supply and demand condition, especially the huge throughput of the port. The increase in transportation sectors or distributing areas during the slack season will pace the way for a booming season in summer season, in favor of the stability of coal market.
2.2 Not a Too High Growth
Comparatively speaking, the increase in Qinhuangdao Port's coal inventory is not too big. Take the inventory on June 19 as an example, the stock that day reached 6.04 million tons, of which 4.84 million tons for domestic sale, up by 2.02 million tons (52.9%) and 1.72 million tons (55.1%) year on year respectively. The quantities should be adjusted to 4.54 million tons and 3.34 million tons, if we exclude the 1.50 million tons coal (for domestic sale) of "Coal Project V" (the Ninth Company). Then, the year-on-year growth should be 520 thousand tons (13.6%) and 220 thousand tons (7.1%) respectively.
2.3 Little Change to the Total Inventory of China Ports
The increase in Qinhuangdao Port's coal inventory brings little change to the total inventory of China's ports. By the end of May, Coal inventory at China's main ports reached 14.707 million tons, 820 thousand tons reduced from that of 2005. Of which, the inventory for domestic sale was 12.30 million tons, 502 thousand tons increased over 2005. This means, though the coal stocks in main ports is growing and Qinhuangdao Port with new record-highs, the total inventory at main ports is basically leveled with the same time last year, and there's no increasing pressure to the coal supply and demand in coastal areas.
Therefore, the negative influence of Qinhuangdao Port's high inventory actually weakened if we consider from the total coal inventory at main ports of China.
2.4 Link the Inventory with Handling Capacity
While talking about the inventory, we should also consider Qinhuangdao Port's handling capacity. During the first five months this year, the volume of coal transported via Qinhuangdao Port is nearly 3 times of Tianjin Port, and 11 times of Jingtang Port. But, the inventory of Qinhuangdao Port is only 2.5 times of Tianjin Port and 4.5 times of Jingtang Port. If the inventory of Tianjin Port and Jingtang Port is not regarded as too high a level, we should not consider Qinhuangdao Port's inventory as exceeding its limit.