Frequent cold snaps across China recently have driven up coal burns at power plants, but market participants are still not so optimistic about thermal coal prices in the days ahead.

 

Since last weekend, China's northern regions have experienced snowfall, temperature decline and heavy wind brought by cold air. In contrast, the temperatures climbed up in south China, with some cities even reaching 30 degrees Celsius.

 

As such, coal consumption picked up noticeably at power plants both in northern and southern China. Daily coal burn of the six major power utilities in coastal provinces has maintained a high level of over 0.80 million tonnes since December, increasing 22,200 tonnes from last year. Thus, their coal inventories dropped obviously to 13.45 million tonnes on December 13.

 

The similar situation is seen for power plants in southern coastal provinces, with their daily coal burn rising to more than 2.1 million tonnes, reducing their coal stocks to 16 days of use.

 

This is also true for power producers in inland areas in the north, whose daily consumption has exceeded 4 million tonnes and existing stocks are enough to sustain for 22 days, a comparatively low period since this year. 

 

On December 13, the National Meteorological Centre issued yellow warnings for cold wave, blizzard and frost, forecasting temperature plunge in most parts of China, with cumulative decline as high as 20 degrees Celsius in the maximum temperatures in some southern regions like Guizhou, Guangxi, Jiangnan and southern Jianghuai.

 

The temperatures are estimated to be warm in the early period of this winter while turn unusually cold during the latter period, according to the National Climate Center.

 

The bad weather conditions are adverse for stability and reliability of power generated by new energy sources. Solar power output will be reduced significantly due to decreasing sunlight and coverage of photovoltaic modules by snow.

 

The icing phenomenon under persistently low temperature will threat normal operation of wind farms. Hydropower generation has improved than the same period of last year, yet the contribution is small in the winter dry season.

 

This means thermal coal market is gaining stronger support from the weather, as daily coal demand of power plants is expected to further rise when the cold winter finally starts. The continuous recovery of industrial sectors will also need more coal and add support to coal prices.

 

This judgement is justified by an upward revision of outsourcing prices and coal shipment prices by a large coal group, which raised prices of some coal types delivered to port by around 30 yuan/t.

 

However, some market insiders still feel uncertain on the sustainability of the uptrend and the future direction.  

 

The sellers are eager to expedite sales now worrying the port closure and fast stock pileup at northern ports under bad weather will make price growth unfeasible, while downstream buyers are mainly on wait-and-see stance and enquiring inactively, leading settlement prices to grow milder and slower compared to offer prices, traders told Sxcoal.   

 

Some participants predicted prices of 5,000 Kcal/kg NAR thermal coal to grow to 900 yuan/t at most and then return to an impasse again, considering no large amount of demand would be released before the Chinese Spring Festival as a result of high stocks at end users and transshipment ports.

 

Presently, mainstream offers for 5,500, 5,000 and 4,000 Kcal/kg NAR cargoes are 960 yuan/t, 885 yuan/t and 740 yuan/t respectively.  

 

On December 12, the Fenwei CCI index for 5,500 Kcal/kg NAR domestic spot coal stood at 948 yuan/t FOB northern China ports with VAT, up 7 yuan/t from a day ago and up 15 yuan/t week on week. The CCI index for 5,000 Kcal/kg NAR domestic coal was at 844 yuan/t FOB, up 9 yuan/t on the day and up 24 yuan/t on the week.