Rises in thermal coal prices at north China ports after the May Day holiday were supported mainly by traders' efforts to prop up prices, and downstream demand is yet to improve materially.

 

On May 7, the CCI index for 5,500 Kcal/kg and 5,000 Kcal/kg NAR coal closed at 843 yuan/t and 748 yuan/t, up 11 yuan/t from the pre-holiday levels, while for 4,500 Kcal/kg NAR coal was 10 yuan/t higher at 655 yuan/t.

 

While there are some positive factors supporting the market, the primary driver behind the sustained price increase is the sellers' determination to maintain high prices.

 

Firstly, although coal transported on the Daqin railway has increased from the maintenance period, the growth has been less than expected. Moreover, as port loading operations were normal, coal inventories at ports around the Bohai Rim has actually declined compared to pre-holiday levels, resulting in a structural shortage of high-quality coal supplies, which has provided sellers with the leverage to hold firm on prices.

 

Secondly, some downstream users, particularly those in the cement, metallurgy, and chemical industries, have seen a slight improvement in their operating rates after the holiday, leading to the release of some pent-up demand and further empowering sellers to maintain high prices.

 

Furthermore, import coal prices remain firm after the holiday, and the high cost of imported coal is keeping buyers cautious, making them more inclined to increase procurement of domestic coal before the price advantage of imported coal becomes more apparent.

 

With these favorable factors in place, market inquiries have remained relatively active, and some individual transaction prices even also edged higher, further bolstering sellers' price-holding sentiment.

 

Additionally, some participants anticipated improvements in both industrial and residential electricity demand in May, suggesting a potential recovery in the thermal coal market. Meanwhile, the lossmaking situation in transporting coal from production areas to ports has continued, as producers raise mine-mouth prices again, offsetting the recent reductions in freight rates of some railways.

 

However, as time passes, more market participants are starting to suggest that the current price levels may be unreasonable, given the lack of a significant demand recovery.

 

"Although prices have risen quickly recently, most of the buyers are traders, not end-users, so the support is not strong, and the enthusiasm is likely to wane soon," said a trader from Zhejiang.

 

Sellers are very enthusiastic, but tendering activity by the downstream are not active, another trader from Jiangsu commented. "Since there is little procurement demand, this round of price increases is expected to last till the end of this week at most, and a mild pullback is highly likely next week."

 

Looking ahead, while the gradually rising temperature may prompt small and mediuml power plants to replenish their coal stockpiles ahead of the peak season, and non-power sector demand is expected to improve further. The actual situation, however, will depend on the pace of macroeconomic recovery and the duration of the high temperatures, both of which remain uncertain.

 

Moreover, if domestic coal prices rise further, the advantage of imported coal will become more apparent, and coastal power plants may opt to increase their procurement of imported coal, potentially weakening the support for domestic coal prices.

 

Additionally, with above-average rainfall in southern China since the flood season, the substitution and displacement effect of hydropower is expected to continue strengthening. Meanwhile, there are signs of improved production activity at coal mines, which could lead to increased supply in the future.

 

Therefore, the positive factors supporting the price increase appear to be relatively weak, and it will be challenging for traders' purchases and sellers' price-holding efforts to sustain the upward trend for an extended period. The changes in downstream procurement, port inventories, and hydropower generation will be key factors to watch going forward.