China's portside thermal coal prices failed to rise further last week as expected as demand remained sluggish despite snowfall and temperature declines. The seaborne market remained stagnant as demand from China and India continued to be subdued. Although Chinese utilities kept seeking January-loading cargoes via tenders, the prices were too low to support spot prices.

 

Fenwei CCI Index

On December 25, the Fenwei CCI index for 5,500 Kcal/kg NAR domestic spot coal stood at 945 yuan/t FOB northern China ports with VAT, down 8 yuan/t week on week. The CCI index for 5,000 Kcal/kg NAR domestic coal was at 835 yuan/t FOB, down 19 yuan/t on the week.

 

 

The Fenwei CCI 5500 Import index stood at $112.0/t, CFR southern China ports, flat week on week. The Fenwei CCI 4700 Import index stood $0.5/t lower at $90.5/t CFR; the Fenwei CCI 3800 Import index was at $68.0/t CFR, a $0.2/t rise on the week.

 

 

Fenwei Survey

Fenwei's weekly survey on 100 thermal coal mines in Shanxi, Shaanxi and Inner Mongolia showed the weighted average capacity utilization stood at 88.74% in the week ending December 20, down from 89.89% a week prior. Their stockpiles totaled 3.30 million tonnes, up 0.59% week on week.

 

Weekly Dynamics

The pithead market demand rebound fell short of expectations. Downstream buyers adopted a "wait-and-see" approach, with their sales mainly relying on long-term contract delivery as well as sporadic purchases from local power and chemical plants.

 

While most coal mines were undergoing destocking, they opted to keep prices stable. However, a small number of coal mines continued to reduce prices due to persistently sluggish sales.

 

Some mines in Inner Mongolia lowered prices by 10-20 yuan/t late last week to elicit buying interests, but received limited boost. Currently, a large number of coal mines saw their stockpiles at a high level.

 

In Yulin, Shaanxi, the situation was a little bit different. Local chemical plants strengthened purchases in the last few days, and washing plants and traders based at railway stations conducted moderate restocking, resulting in a small price hike at some mines. However, the overall demand remained limited.

 

Safety checks in major producing areas remained strict. Although large-scale production suspensions were not heard, illegal activities such as overproduction were heavily cracked down.

 

Last week, an accident occurred at a coal mine in northeastern China's Heilongjiang, killing 12 people and injuring 13 others. Preliminary investigation showed the accident happened when the wire rope snapped as some shuttle cars were being hoisted to the entrance.

 

As of December 22, Fenwei assessed Yulin 5,800 Kcal/kg NAR thermal coal at 797 yuan/t, mine-mouth with VAT, down 1.1% from a week ago; Ordos 5,500 Kcal/kg NAR coal was assessed at 716 yuan/t, down 0.8% week on week; Shanxi Datong 5,500 Kcal/kg NAR coal was assessed at 811 yuan/t, a 1.4% rise.

 

 

At northern ports, spot prices were largely unchanged before a small drop in last two days, undermined by thin buying interest from downstream buyers.

 

As of late last week, 5,500 Kcal/kg NAR coal was mainly offered at 950-960 yuan/t FOB with VAT, down from 960-970 yuan/t in the previous week. Cargoes of 5,000 kcal/kg NAR saw offer prices drop to 840-850 yuan/t from 855-865 yuan/t. Bidding prices were, however, around 920-930 yuan/t and 820-830 yuan/t, respectively.

 

Expanded offer-bid spread reflected low buying interest from buyers and sellers' reluctance of selling at a lower-than-cost price. This situation may persist this week, considering a pick-up in temperatures that could ease coal burns at power plants.

 

China's top economic planner said the country has adequate coal inventories to ensure stable energy supplies, with stocks at grid-connected power plants currently stand above 200 million tonnes, sufficient for 26 days of use.

 

Ccoal stockpiles at the six coastal power groups once declined to a recent low of 14.6 days of use on December 22, but recovered soon to 15.1 days on December 25.

 

Coal inventory experienced a steep decline at China's major transshipment port of Qinhuangdao last week, as outflows soared after handling operations recovered and coal railings were curbed.

 

Qinhuangdao's coal stocks stood at 6.37 million tonnes on December 22, falling 13.33% week on week yet rising 0.47% month on month. The volume was 12.54% higher than the year-ago level, Sxcoal's data showed.

 

The soared outbound deliveries could be evidenced by a clear rise in coastal shipping rates, up by 5.8-8.8 yuan/t for some routes from the previous week.

 

The seaborne thermal coal market saw a small rise in low-CV offer prices last week, but transactions were settled at prices almost unchanged with a week earlier.

 

Last week, some mines faced logistical challenges caused by rain and flooding in Indonesia, but the impact was seen limited. Meanwhile, there were producers grappling with approval for the next year's production quotas.

 

These two factors didn't impact coal supply significantly, but bolstered market sentiment, with miners reluctant to lower prices, despite a lack of demand from China and India.

 

However, most of miners in Indonesia were not worried about their exports as they sold domestically to fulfilling Domestic Market Obligation.

 

While China's demand for spot coal remained tepid, Chinese utilities actively sought overseas shipments for delivery in January or even early February.

 

The mainstream tender-awarded prices declined to 550 yuan/t DDP South China with VAT for 3,800 Kcal/kg NAR, which nets back to $59-60/t FOB Kalimantan on a Supramax basis. Lower bid prices for utility tenders last week may drag down spot prices.

 

On the other hand, demand from India continued to be subdued. Cost-sensitive Indian buyers were standing on the sidelines. As of December 19, the country's coal stockpiles at all power plants across India could sustain more than 11 days of use.

 

China is likely to reinstate import duties on coal from other countries next year, potentially raising import costs from major suppliers like Russia and Mongolia. Australia and Indonesia would not be impacted under FTAs signed with China.

 

Forecast

China's domestic thermal coal prices are likely to fall this week, given higher temperatures in most parts of China. Once coal is resupplied by taking advantage of lower prices, demand for spot coal in next several weeks before the Chinese Lunar New Year would be squeezed.

 

In the seaborne import market, spot prices are likely to follow the trend of Chinese domestic market. India's demand is unlikely to recover unless coal consumption increase strongly, possibly by April next year.